C & F FINANCIAL CORP
FORM 10-K
(Annual Report)
Filed 3/15/2002 For Period Ending 12/31/2001
Address
EIGHTH & MAIN STREETS P O BOX 391
WEST POINT, Virginia 23181
Telephone
804-843-2360
CIK
Industry
Sector
0000913341
Regional Banks
Financial
Fiscal Year
12/31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
or
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 No.000-23423
C&F FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1680165
(State of incorporation) (I.R.S. Employer Identification No.)
Eighth and Main Streets, West Point, VA 23181
(Address of principal executive offices)
Registrant's telephone number (804) 843-2360
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
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 ( X ) 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 $69,327,000 as of February 26,
2002.
The number of shares of the registrant's common stock outstanding as of February 26, 2002 was 3,529,726.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement dated March 15, 2002 to be delivered to shareholders in connection with the Annual Meeting of
Shareholders to be held April 16, 2002 are incorporated by reference into Part III.
TABLE OF CONTENTS
PART I
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 3
ITEM 6. SELECTED FINANCIAL DATA ......................................... page 4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION .................. page 5
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ...... page 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ..................... page 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE ........................ page 43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT ............................................. page 43
ITEM 11. EXECUTIVE COMPENSATION .......................................... page 43
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT ......................................... page 43
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS .................................................. page 44
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K ................................ page 44
ITEM 1. BUSINESS
General
C&F Financial Corporation (the "Corporation") is a bank holding company which was incorporated under the laws of the Commonwealth of
Virginia in March, 1994. The Corporation 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 twelve branches including
the main office. The Bank has its main office at Eighth and Main Streets, West Point, Virginia, and has branch offices in Richmond, Norge,
Middlesex, Midlothian, Providence Forge, Quinton, Sandston, Varina, Williamsburg (two branches), and West Point (two 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 generally 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; that portion of Gloucester County which is north and west of Routes 14 and 17;
Northwestern Chesterfield County, the western portion of the City of Richmond and western Henrico County along the Route 250 corridor.
The Corporation, through its subsidiaries, offers a wide range of banking services available to both individuals and 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. The Bank also offers ATMs, internet banking services, 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 four wholly-owned subsidiaries, C&F Title Agency, Inc., C&F Investment Services, Inc., C&F Insurance Services, Inc., and
C&F Mortgage Corporation, all incorporated under the laws of the Commonwealth of Virginia. The Bank also operates Citizens and
Commerce Bank (CCB), a division of the Bank, to offer banking services to the Richmond Market. CCB operates two of the Bank's Richmond
Branches. C&F Title Agency, Inc. organized in October 1992, sells title insurance. 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
Insurance Services, Inc., organized in July 1999, owns 2.4% of the Virginia Bankers Insurance Center, LLC which currently offers insurance
products to commercial customers. C&F Mortgage Corporation, organized in September 1995, originates and sells residential mortgages. C&F
Mortgage Corporation provides mortgage services through seven locations in Virginia and three in Maryland. The Virginia offices are in
Richmond (two locations), Williamsburg, Newport News, Charlottesville, Lynchburg, and Chester. The Maryland offices are in Annapolis,
Crofton, and Ellicott City. See Note 16 to the Consolidated Financial Statements for summarized financial information by business segment.
As of December 31, 2001, a total of 311 persons were employed by the Corporation, of whom 32 were part-time. The Corporation considers
relations with its employees to be excellent.
1
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 and national banks. The Bank also competes for deposits with
savings associations, credit unions, money-market funds, and other community banks. 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 and C&F Insurance Services compete with other investment companies, brokerage firms, and insurance companies
to provide these services.
C&F Title Agency competes with other title companies.
Regulation and Supervision
The Corporation is subject to regulation by the Federal Reserve Bank under the Bank Holding Company Act of 1956. The Corporation 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
Corporation and its subsidiary.
The Corporation owns the headquarters building 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 and office space for the Corporation's administrative personnel.
The Corporation 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 Corporation in 1991.
The two-story building has 20,000 square feet.
The Corporation owns a building located at Sixth and Main Streets in West Point, Virginia. The building provides space for Citizens and
Farmers Bank loan operations functions and staff. The building was bought and remodeled by the Corporation in 1998. The building has 5,000
square feet.
2
The Corporation owns a building located at 1400 Alverser Drive in Midlothian, Virginia. The building provides space for CCB's main office
and branch and for C&F Mortgage Corporation's administrative office. This two-story building has 25,000 square feet
Citizens and Farmers Bank owns ten 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 ten leased offices, seven in Virginia and three in Maryland. Rental expense for these locations totaled
$580,000 for the year ended December 31, 2001.
All of the Corporation's properties are in good operating condition and are adequate for the Corporation's present and anticipated future needs.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Corporation is a party or to which the property of the Corporation 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 Corporation
through a solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Corporation's common stock is traded on the over-the-counter market and is listed on the Nasdaq Stock Market under the symbol "CFFI."
As of March 5, 2002, there were approximately 1,100 shareholders of record. Following are the high and low closing prices along with the
dividends that were paid quarterly in 2001 and 2000. Over-the-counter market quotations reflect interdealer prices, without retail mark up,
mark down, or commission, and may not necessarily represent actual transactions.
2001 2000
-------------------------- --------------------------
Quarter High Low Dividends High Low Dividends
First $16.50 $14.50 $0.14 $18.00 $11.25 $0.13
Second 17.20 15.90 0.14 17.75 11.25 0.13
Third 18.20 16.25 0.15 17.38 15.00 0.13
Fourth 21.00 18.68 0.15 16.25 14.50 0.14
3
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR FINANCIAL SUMMARY
2001 2000 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------------
Selected Year-End Balances:
Total assets $404,075,974 $347,471,672 $329,241,321 $320,863,629 $278,105,969
Total capital 44,743,023 38,780,450 35,129,710 36,647,493 31,800,533
Total loans (net) 246,112,369 229,943,715 206,115,896 169,918,428 154,744,620
Total deposits 323,912,501 290,688,036 260,853,635 251,673,159 231,513,152
-----------------------------------------------------------------------------------------------------------------------------
Summary of Operations:
Interest income 28,234,385 26,421,479 23,643,557 22,617,509 19,763,048
Interest expense 11,984,392 11,309,399 9,067,867 9,558,059 8,002,301
-----------------------------------------------------------------------------------------------------------------------------
Net interest income 16,249,993 15,112,080 14,575,690 13,059,450 11,760,747
Provision for loan losses 400,000 400,000 600,000 600,000 330,000
-----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan
losses 15,849,993 14,712,080 13,975,690 12,459,450 11,430,747
Other operating income 17,420,619 8,945,062 11,004,456 10,835,243 6,657,608
Other operating expenses 21,964,093 15,998,380 15,829,550 14,807,306 11,537,565
-----------------------------------------------------------------------------------------------------------------------------
Income before taxes 11,306,519 7,658,762 9,150,596 8,487,387 6,550,790
Income tax expense 3,317,802 1,822,731 2,394,366 2,353,351 1,613,963
-----------------------------------------------------------------------------------------------------------------------------
Net income $ 7,988,717 $ 5,836,031 $ 6,756,230 $ 6,134,036 $ 4,936,827
=============================================================================================================================
Per share
Earnings per common share--assuming
dilution $ 2.23 $ 1.60 $ 1.81 $ 1.56 $ 1.25
Dividends .58 .53 .49 .44 .35
-----------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares--assuming
dilution 3,587,307 3,640,314 3,738,234 3,919,775 3,952,756
-----------------------------------------------------------------------------------------------------------------------------
Significant Ratios 2001 2000 1999
-----------------------------------------------------------------------------------------------------------------------------
Return on average assets 2.09% 1.76% 2.19%
Return on average equity 18.93 15.99 19.22
Dividend payout ratio 25.74 32.74 26.60
Average equity to average assets 11.05 10.99 11.38
-----------------------------------------------------------------------------------------------------------------------------
4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
OVERVIEW
Net income totaled $8.0 million in 2001, an increase of 36.9% compared to 2000. Included in earnings for 2001 was $776,000 in other
operating income (after taxes) which resulted from a gain on the sale of the Bank's Tappahannock branch. Excluding this gain, net income
increased 23.6% compared to 2000. In 2000, net income totaled $5.8 million, a 13.6% decrease compared to 1999. Diluted earnings per share
were $2.23, $1.60, and $1.81, in 2001, 2000, and 1999, respectively. Excluding the gain on the sale of the branch, diluted earnings per share
were $2.01 in 2001. The increase in earnings per share for 2001 was a result of higher net income and the repurchase of 59,981 shares of the
Corporation's common stock. The decrease in earnings per share for 2000 was a result of lower net income offset by the repurchase of 85,000
shares of the Corporation's common stock.
Profitability as measured by the Corporation's return on average equity (ROE) was 18.93% in 2001, 15.99% in 2000, and 19.22% in 1999.
Another key indicator of performance, the return on average assets (ROA) for 2001, was 2.09%, compared to 1.76% in 2000, and 2.19% for
1999.
5
TABLE 1: Average Balances, Income and Expense, Yields and Rates
The following table shows the average balance sheets for each of the years ended December 31, 2001, 2000, and 1999. In addition, the amounts
of interest earned on earning assets, with related yields and interest on interest-bearing liabilities, together with the rates, are shown. Loans
include loans held for sale. Loans placed on a non-accrual status are included in the balances and were included in the computation of yields,
upon which they had an immaterial effect. Interest on tax-exempt securities is on a taxable-equivalent basis, which was computed using the
federal corporate income tax rate of 34% for all three years.
2001 2000 1999
-------------------------- --------------------------- ---------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
--------------------------------------------------------------------------------------------------------------------------------
Assets
Securities:
Taxable $ 8,402 $ 591 7.03% $ 16,089 $ 1,157 7.19% $ 15,293 $ 1,097 7.17%
Tax-exempt 51,185 4,088 7.99 52,068 4,196 8.06 49,049 4,013 8.18
--------------------------------------------------------------------------------------------------------------------------------
Total securities 59,587 4,679 7.85 68,157 5,353 7.85 64,342 5,110 7.94
Loans, net 293,056 24,810 8.47 241,291 22,245 9.22 216,295 18,850 8.71
Interest-bearing deposits
in other banks and fed funds 3,216 100 3.11 3,482 215 6.17 9,621 458 4.76
--------------------------------------------------------------------------------------------------------------------------------
Total earning assets 355,859 $29,589 8.31% 312,930 $27,813 8.89% 290,258 $24,418 8.41%
Reserve for loan losses (3,730) (3,451) (3,003)
Total non-earning assets 29,638 22,723 21,710
--------------------------------------------------------------------------------------------------------------------------------
Total assets $381,767 $332,202 $308,965
--------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Time and savings deposits:
Interest-bearing deposits $ 54,481 $ 1,046 1.92% $ 50,977 $ 1,236 2.42% $ 45,627 $ 1,084 2.38%
Money market deposit accounts 26,290 802 3.05 25,938 877 3.38 25,207 807 3.20
Savings accounts 38,921 952 2.45 38,640 1,150 2.98 39,131 1,164 2.97
Certificates of deposit,
$100M or more 32,421 1,769 5.46 22,955 1,266 5.52 17,977 857 4.77
Other certificates of deposit 119,535 6,639 5.55 96,004 5,203 5.42 89,467 4,416 4.94
--------------------------------------------------------------------------------------------------------------------------------
Total time and savings deposits 271,648 11,208 4.13 234,514 9,732 4.15 217,409 8,328 3.83
--------------------------------------------------------------------------------------------------------------------------------
Borrowings 19,628 836 4.26 25,774 1,577 6.12 15,002 740 4.93
--------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 291,276 12,044 4.14% 260,288 11,309 4.34% 232,411 9,068 3.90%
--------------------------------------------------------------------------------------------------------------------------------
Demand deposits 39,240 31,511 35,697
Other liabilities 9,060 3,895 5,701
--------------------------------------------------------------------------------------------------------------------------------
Total liabilities 339,576 295,694 273,809
Shareholders' equity 42,191 36,508 35,156
--------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
Shareholders' equity $381,767 $332,202 $308,965
--------------------------------------------------------------------------------------------------------------------------------
Net interest income $17,545 $16,504 $15,350
--------------------------------------------------------------------------------------------------------------------------------
Interest rate spread 4.17 4.55 4.51
--------------------------------------------------------------------------------------------------------------------------------
Interest expense to
average earning assets 3.38 3.61 3.12
--------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.93% 5.27% 5.29%
================================================================================================================================
6
RESULTS OF OPERATIONS
NET INTEREST INCOME
During 2001, net interest income, on a taxable equivalent basis, increased 6.3% to $17.5 million from $16.5 million. This was a result of a
13.7% increase in the average balance of interest earning assets offset by a decrease in the net interest margin to 4.93% in 2001 from 5.27% in
2000. The increase in average earning assets was the result of an increase in the average balance of the loan portfolio at the Bank and an
increase in the average balance of loans held for sale by C&F Mortgage Corporation (the "Mortgage Corporation") offset by a decrease in the
Bank's securities portfolio and an increase in non-earning assets. The increase in loans at the Bank was a result of overall higher loan demand.
The decrease in the average balance of securities was a result of calls and maturities of securities during 2001. The increase in non-earning
assets principally resulted from the addition of new branch locations. Numerous securities were called as a result of the lower interest rate
environment in 2001. The increase in loans held for sale at the Mortgage Corporation was a result of an increase in loan originations to $627
million in 2001 from $294 million in 2000 and an increase in loan fundings (sales) to $575 million in 2001 from $302 million in 2000. The
decrease in the net interest margin was a result of a decrease in the yield on average earning assets from 8.89% in 2000 to 8.31% in 2001 offset
by a decrease in the cost of funds from 4.34% in 2000 to 4.14% in 2001. The decrease in the average yield on interest earning assets was
primarily a result of the declining interest rate environment. The decrease in the cost of funds was primarily a result of the declining interest
rate environment during 2001 and a decrease in the average balance of borrowings from the Federal Home Loan Bank ("FHLB"). During 2001,
the Federal Reserve decreased the federal funds rate 11 times for a total of 475 basis points.
During 2000, net interest income, on a taxable equivalent basis, increased 7.5% to $16.5 million from $15.4 million, excluding the one-time
interest collected on a non-accrual loan in 1999. This was a result of a 7.8% increase in the average balance of interest earning assets offset by a
slight decrease in the net interest margin to 5.27% in 2000 from 5.29% in 1999. The increase in average earning assets was the result of an
increase in the average balance of the loan portfolio and securities portfolio at the Bank offset by a decrease in the average balance of loans
held for sale by the Mortgage Corporation, and a decrease in the average balance in interest earning deposits in other banks and fed funds sold.
The increase in loans at the Bank was a result of overall higher loan demand. The increase in the average balance of securities was a result of
the purchase of securities during the last six months of 1999. A large number of securities were called in the first half of 1999 and were
replaced in the second half of 1999. The current year reflects the effect of a full year of these purchases. The decrease in loans held for sale at
the Mortgage Corporation was a result of a decrease in loan originations to $294 million in 2000 from $457 million in 1999 and a decrease in
loan fundings
(sales) to $302 million in 2000 from $499 million in 1999. The decrease in the average balance in interest earning deposits in other banks and
fed funds sold was a result of excess liquidity being invested in higher yielding loans and securities. The decrease in the net interest margin was
a result of an increase in the cost of funds from 3.90% in 1999 to 4.34% in 2000 offset by an increase in the yield on average earning assets
from 8.41% in 1999 to 8.89% in 2000. The increase in the cost of funds was a result of the overall higher interest rate environment during 2000
and an increase in the average balance of higher cost borrowings from the FHLB. From August 1999 to March 2000, the interest rates on fed
funds increased 150 basis points. This increase was clearly reflected in the average cost of certificates of deposit paid by the Corporation. The
increase in the average balance of borrowings from the FHLB was a result of loan growth outpacing deposit growth during most of 2000. In
addition to providing funding for loans originated and subsequently sold by the Mortgage Corporation, borrowings from the FHLB are
occasionally used for funding of the Bank's loan portfolio. The increase in the average yield on interest earning assets was mainly a result of the
higher interest rate environment and the decrease in the average balance of lower yielding loans held for sale at the Mortgage Corporation.
7
TABLE 2: Rate-Volume Recap
Interest income and expense are affected by fluctuations in interest rates, by changes in the volume of earning assets and interest-bearing
liabilities, and by the interaction of rate and volume factors. The following analysis shows the direct causes of the year-to-year changes in the
components of net interest earnings on a taxable-equivalent basis. The rate and volume variances are calculated by a formula prescribed by the
Securities and Exchange Commission. Rate/volume variances, the third element in the calculation, are not shown separately, but are allocated
to the rate and volume variances in proportion to the relationship of the absolute dollar amounts of the change in each. Loans include both non-
accrual loans and loans held for sale.
2001 from 2000 2000 from 1999
------------------------------- ---------------------------------
Increase (Decrease) Total Increase (Decrease) Total
Due to Increase Due to Increase
(Dollars in thousands) Rate Volume (Decrease) Rate Volume (Decrease)
-------------------------------------------------------------------------------------------------------------------------------
Interest income:
Loans $ (1,925) $ 4,490 $ 2,565 $ 1,133 $ 2,262 $ 3,395
Securities:
Taxable (25) (541) (566) 3 57 60
Tax-exempt (37) (71) (108) (61) 244 183
------------------------------------------------------------------------------------------------------------------------------
Total securities (62) (612) (674) (58) 301 243
------------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits in other banks
and fed funds (97) (18) (115) 43 (286) (243)
------------------------------------------------------------------------------------------------------------------------------
Total interest income (2,084) 3,860 1,776 1,118 2,277 3,395
------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Time and savings deposits:
Interest-bearing deposits (270) 80 (190) 23 129 152
Money market deposit accounts (87) 12 (75) 46 24 70
Savings accounts (206) 8 (198) 1 (15) (14)
Certificates of deposit, $100M or more (14) 517 503 148 261 409
Other certificates of deposit 132 1,304 1,436 451 336 787
------------------------------------------------------------------------------------------------------------------------------
Total time and savings deposits (445) 1,921 1,476 669 735 1,404
Other borrowings (415) (326) (741) 210 627 837
------------------------------------------------------------------------------------------------------------------------------
Total interest expense (860) 1,595 735 879 1,362 2,241
------------------------------------------------------------------------------------------------------------------------------
Change in net interest income $ (1,224) $ 2,265 $ 1,041 $ 239 $ 915 $ 1,154
==============================================================================================================================
8
NON-INTEREST INCOME
TABLE 3: Non-Interest Income
Year Ended December 31,
------------------------
(Dollars in thousands) 2001 2000 1999
-----------------------------------------------------------------------------------------------------------------------------
Gain on sale of loans $10,390 $ 5,009 $ 6,692
Service charges on deposit accounts 1,442 1,336 1,154
Other service charges and fees 3,211 1,675 1,950
Gain on calls of available for sale securities 6 100 139
Gain on sale of branch 1,176 -- --
Other income 1,196 825 1,069
-----------------------------------------------------------------------------------------------------------------------------
$17,421 $ 8,945 $11,004
=============================================================================================================================
2001 vs. 2000
Non-interest income increased by $8.5 million, or 94.8%, in 2001. The increase was mainly a result of a $5.4 million increase in the gain on
sale of loans at the Mortgage Corporation. This increase was a result of the overall increase in production at the Mortgage Corporation which
was a result of the lower interest rate environment in 2001 compared to 2000. Other service charges and fees increased $1,536,000 as a result
of increased production at the Mortgage Corporation and other income increased $371,000 largely due to increased production at the Mortgage
Corporation and C&F Title Agency. The gain on sale of branch was a result of the sale of the Bank's Tappahannock branch office during the
fourth quarter of 2001. Management believed this location did not fit into the Bank's geographic focus.
2000 vs. 1999
Non-interest income decreased by $2.1 million, or 18.7%, in 2000. The decrease was mainly a result of a $1.7 million decrease in the gain on
sale of loans at the Mortgage Corporation. This decrease was a result of the overall decrease in production at the Mortgage Corporation which
was a result of the higher interest rate environment in 2000 compared to 1999. In addition, other service charges and fees at the Mortgage
Corporation declined $309,000 and other income at the Title Company, declined $132,000. These decreases were partially offset by an increase
in service charges on deposit accounts at the Bank of $181,000 which was due to the overall growth of the Bank during 2000.
NON-INTEREST EXPENSE
TABLE 4: Non-Interest Expense
Year Ended December 31,
-----------------------
(Dollars in thousands) 2001 2000 1999
-----------------------------------------------------------------------------------------------------------------------------
Salaries and employee benefits $13,443 $ 9,603 $ 9,366
Occupancy expense 2,886 2,378 2,044
Goodwill amortization 268 275 275
Other expenses 5,367 3,742 4,145
-----------------------------------------------------------------------------------------------------------------------------
$21,964 $15,998 $15,830
=============================================================================================================================
9
2001 vs. 2000
Non-interest expense increased $5,966,000, or 37.3%, over 2000. This increase was primarily a result of increased salaries and variable
compensation at the Mortgage Corporation due to an increase in production. Salaries and benefits at the Bank also increased as a result of
overall growth, the opening of a new branch by CCB, and the opening of a branch of the Bank in Sandston during the fourth quarter of 2001.
The opening of the two new branches along with investments in imaging and internet banking technology resulted in an increase in occupancy
expenses. Other expenses increased mainly as a result of increased production at the Mortgage Corporation.
2000 vs. 1999
Non-interest expense increased $168,000, or 1.1%, over 1999. This increase was a result of increased salaries and benefits at the Bank offset by
decreased salaries and variable compensation at the Mortgage Corporation due to a decrease in production. The increase in salaries and benefits
at the Bank was due to overall growth including the formation of CCB, and the opening of a branch of the Bank in Williamsburg, Virginia
during the second quarter of 2000. CCB was formed in the second half of 1999. The growth of the Bank also resulted in an increase in
occupancy expense. Other expenses declined mainly as a result of decreased production at the Mortgage Corporation.
INCOME TAXES
Applicable income taxes on 2001 earnings amounted to $3,318,000, resulting in an effective tax rate of 29.3% compared to $1,823,000, or
23.8% in 2000, and $2,394,000, or 26.1% in 1999. The increase in the effective tax rate for 2001 as compared to 2000 was a result of a
decrease in earnings from tax exempt assets as a percentage of total income mainly resulting from the increased earnings at the Mortgage
Corporation. The decrease for 2000 compared to 1999 was a result of the increase in earnings from tax exempt assets as a percentage of total
income mainly resulting from the decrease in earnings at the Mortgage Corporation.
TABLE 5: Allowance for Loan Losses
Year Ended December 31,
------------------------------------
(Dollars in thousands) 2001 2000 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------------------
Reserve, beginning of period $3,609 $3,302 $2,760 $2,234 $1,927
Provision for loan losses 400 400 600 600 330
Loans charged off:
Real estate--mortgage -- -- 10 33 12
Real estate--construction 32 31 -- -- --
Commercial, financial, and agricultural 126 -- -- -- 3
Consumer 192 71 76 66 12
--------------------------------------------------------------------------------------------------------------------------------
Total loans charged off 350 102 86 99 27
Recoveries of loans previously charged off:
Real estate--mortgage -- -- -- 25 --
Commercial, financial, and agricultural -- -- 13 -- --
Consumer 25 9 15 -- 4
--------------------------------------------------------------------------------------------------------------------------------
Total recoveries 25 9 28 25 4
Net loans charged off 325 93 58 74 23
--------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $3,684 $3,609 $3,302 $2,760 $2,234
--------------------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average total loans
outstanding during period .11% .04% .03% .04% .01%
================================================================================================================================
10
TABLE 6: Allocation of Allowance for Possible Loan Losses
The allowance for loan losses is a general allowance applicable to all loan categories; however, management has allocated the allowance to
provide an indication of the relative risk characteristics of the loan portfolio. The allocation is an estimate and should not be interpreted as an
indication that charge-offs in 2002 will occur in these amounts, or that the allocation indicates future trends. The allocation of the allowance at
December 31 for the years indicated and the ratio of related outstanding loan balances to total loans are as follows:
(Dollars in thousands) 2001 2000 1999 1998 1997
---------------------------------------------------------------------------------------------------------------------------------
Allocation of allowance for loan losses, end of year:
Real estate--mortgage $ 619 $ 743 $ 753 $ 667 $ 692
Real estate--construction 263 251 160 108 89
Commercial, financial, and agricultural 2,203 2,005 1,686 1,211 926
Equity lines 113 116 103 86 71
Consumer 290 267 380 251 167
Unallocated 196 227 220 437 289
--------------------------------------------------------------------------------------------------------------------------------
Balance, December 31 $3,684 $3,609 $3,302 $2,760 $2,234
--------------------------------------------------------------------------------------------------------------------------------
Ratio of loans to total year-end loans:
Real estate--mortgage 32% 37% 43% 50% 57%
Real estate--construction 4 4 4 3 3
Commercial, financial, and agricultural 55 49 42 36 31
Equity lines 4 5 5 5 4
Consumer 5 5 6 6 5
--------------------------------------------------------------------------------------------------------------------------------
100% 100% 100% 100% 100%
================================================================================================================================
ASSET QUALITY-ALLOWANCE AND PROVISION FOR LOAN LOSSES
The allowance for loan losses is to provide for potential losses in the loan portfolio. Among other factors, management considers the
Corporation's historical loss experience, the size and composition of the loan portfolio, the value and adequacy of collateral and guarantors,
non-performing credits, and current economic conditions. There are additional risks of future loan losses which cannot be precisely quantified
or attributed to particular loans or classes of loans. Since those risks include general economic trends as well as conditions affecting individual
borrowers, the allowance for loan losses is an estimate. The allowance is also subject to regulatory examinations and determination as to
adequacy, which may take into account such factors as the methodology used to calculate the allowance and the size of the allowance in
comparison to peer banks identified by regulatory agencies.
In 2001, the provision for loan losses was $400,000 compared to $400,000 in 2000 and $600,000 in 1999. Over the past several years, the
Corporation has substantially increased its portfolio of commercial, financial, and agricultural loans. The risks associated with increasing the
volume of such loans resulted in an increase in the provision for loan losses for 1999 when compared to years prior to 1998. While the
Corporation continues to increase its commercial, financial and agricultural loan portfolio, the portfolio also continues to become "more
seasoned" allowing management to better assess the risk associated with the portfolio. Accordingly, management was able to reduce the
provision for loan losses in 2001 and 2000 to $400,000 from $600,000 in 1999. Table 6 presents the allocation of the allowance for possible
loan losses by loan category.
Loans charged off during 2001 amounted to $350,000 compared to $102,000 in 2000 and $86,000 in 1999. Recoveries amounted to $24,000,
$9,000, and $28,000 in 2001, 2000, and 1999, respectively. The ratio of net charge-offs to average outstanding loans was .11% in 2001,.04% in
2000, and .03% in 1999. Management believes that the reserve is
11
adequate to absorb any losses on existing loans that may become uncollectible. Table 5 presents the Corporation's loan loss and recovery
experience for the past five years.
NON-PERFORMING ASSETS
Total non-performing assets, which consist of the Corporation's non-accrual loans and real estate owned, were $1,026,000 at December 31,
2001, an increase of $506,000 from December 31, 2000. The increase in non-performing assets is a result of certain lending relationships being
put on non-accrual status during the year. The Corporation is closely monitoring these relationships and does not anticipate a significant loss.
Loans are generally placed on non-accrual status when the collection of principal or interest is ninety days or more past due, or earlier, if
collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Loans
greater than ninety days past due may remain on accrual status if management determines it has adequate collateral to cover the principal and
interest. For those loans which are carried on non-accrual status, interest is recognized on the cash basis. $91,000, $37,000, and $8,000 in
additional gross interest income would have been recorded if non-accrual loans had been current throughout the period outstanding for 2001,
2000, and 1999, respectively. Interest income received on non-accrual loans was $2,000, $2,000, and $551,000 for the periods ended December
31, 2001, 2000, and 1999, respectively.
Impaired loans are measured based on the present value of expected future cash flows discounted at the effective interest rate of the loan (or, as
a practical expedient, at the loan's observable market price) or the fair value of the collateral if the loan is collateral dependent. The Corporation
considers a loan impaired when it is probable that the Corporation will be unable to collect all interest and principal payments as scheduled in
the loan agreement. A loan is not considered impaired during a period of delay in payment if the ultimate collectibility of all amounts due is
expected. A valuation allowance is maintained to the extent that the measure of the impaired loan is less than the recorded investment. The
balances of impaired loans at December 31, 2001 and 2000, was $1,026,000 and $473,000 respectively, with no specific valuation allowance
associated with these loans. The average balances of impaired loans for 2001 and 2000 were $513,000 and $357,000, respectively.
Table 7 summarizes non-performing assets for the past five years.
TABLE 7: Non-Performing Asset Activity
(Dollars in thousands) 2001 2000 1999 1998 1997
----------------------------------------------------------------------------------------------------------------------------------
Non-accrual loans $1,026 $ 473 $ 49 $463 $497
Real estate owned -- 47 -- -- 444
---------------------------------------------------------------------------------------------------------------------------------
Total non-performing assets 1,026 520 49 463 941
---------------------------------------------------------------------------------------------------------------------------------
Principal and/or interest past due for 90 days or more $ 913 $1,586 $786 $958 $768
---------------------------------------------------------------------------------------------------------------------------------
Non-performing loans to total loans .41% .20% .02% .27% .31%
Allowance for loan losses to total loans 1.47 1.55 1.58 1.60 1.42
Allowance for loan losses to non-performing loans 359.06 763.00 6,738.78 596.11 449.30
Non-performing assets to total assets .25% .15% .01% .14% .34%
=================================================================================================================================
12
FINANCIAL CONDITION
SUMMARY
A financial institution's primary sources of revenue are generated by its earning assets, while its major expenses are produced by the funding of
those assets with interest-bearing liabilities. Effective management of these sources and uses of funds is essential in attaining a financial
institution's maximum profitability while maintaining an acceptable level of risk.
At the end of 2001, the Corporation had total assets of $404 million, up 16.4% over the previous year-end. In 2000, there was an increase of
5.5% in total assets over year-end 1999. Asset growth in 2001 is attributable to an increase in loans at the Bank and an increase in loans held
for sale at the Mortgage Corporation.
TABLE 8: Summary of Total Loans
Year Ended December 31,
------------------------------------------------------------------
(Dollars in thousands) 2001 2000 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------------------
Real estate--mortgage $ 80,977 $ 86,453 $ 89,952 $ 86,311 $ 88,973
Real estate--construction 8,819 9,099 7,968 5,359 4,454
Commercial, financial, and agricultura/l/ 137,374 113,570 89,135 62,885 48,737
Equity lines 11,284 11,616 10,272 8,580 7,131
Consumer 11,342 12,815 12,091 9,543 7,684
-----------------------------------------------------------------------------------------------------------------------------------
Total loans 249,796 233,553 209,418 172,678 156,979
Less allowance for loan losses (3,684) (3,609) (3,302) (2,760) (2,234)
----------------------------------------------------------------------------------------------------------------------------------
Total loans, net $246,112 $229,944 $206,116 $169,918 $154,745
==================================================================================================================================
/1/ Includes loans secured by real estate
TABLE 9: Maturity/Repricing Schedule of Loans
December 31, 2001
------------------------------------
Commercial, financial, Real estate
(Dollars in thousands) and agricultural construction
-------------------------------------------------------------------------------------------------------------------------
Variable Rate:
Within 1 year $49,523 $ --
1 to 5 years 19,846 --
After 5 years 9,657 --
Fixed Rate:
Within 1 year 8,695 8,819
1 to 5 years 18,540 --
After 5 years 31,113 --
=========================================================================================================================
LOAN PORTFOLIO
At December 31, 2001, loans, net of unearned income and reserve for loan losses, totaled $246.1 million, an increase of 7.0% over the 2000
total of $229.9 million. Net loans increased 11.6% and 21.3% in 2000 and 1999, respectively.
The corporation's lending activities are its principal source of income. All loans are attributable to domestic operations. Residential real estate
loans, both construction and permanent, and commercial, including, commercial real
13
estate, represent the major portion of the Corporation's loan portfolio. Tables 8 and 9 present information pertaining to the composition of loans
and the maturity/repricing of loans.
TABLE 10: Maturity of Securities
Year Ended December 31,
------------------------------------------------
2001 2000 1999
---------------------- -------------------- ----------------------
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
(Dollars in thousands) Cost Yield Cost Yield Cost Yield
-------------------------------------------------------------------------------------------------------------------------------
U.S. government agencies and corporations:
Maturing after 5 years, but within 10 years $ -- --% $ 4,500 7.03% $ 4,500 7.03%
Maturing after 10 years -- -- 9,000 7.08 9,000 7.08
------------------------------------------------------------------------------------------------------------------------------
Total U.S. government agencies and corporations -- -- 13,500 7.07 13,500 7.07
------------------------------------------------------------------------------------------------------------------------------
U.S. Treasuries:
Maturing within 1 year -- -- 1,000 8.01 -- --
Maturing after 1 year, but within 5 years -- -- -- -- 1,000 8.01
------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasuries -- -- 1,000 8.01 1,000 8.01
------------------------------------------------------------------------------------------------------------------------------
Mortgage backed securities:
Maturing after 1 year, but within 5 years 1,948 5.83 -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
Total mortgage backed securities 1,948 5.83 -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
States and municipals:1
Maturing within 1 year 1,164 8.55 2,028 10.43 155 9.77
Maturing after 1 year, but within 5 years 4,234 8.20 4,378 8.42 4,190 8.87
Maturing after 5 years, but within 10 years 19,061 7.54 15,871 7.61 14,352 7.97
Maturing after 10 years 20,817 7.22 23,907 7.29 28,496 7.52
------------------------------------------------------------------------------------------------------------------------------
Total states and municipals 45,276 7.48 46,184 7.64 47,193 7.66
------------------------------------------------------------------------------------------------------------------------------
Total securities:2
Maturing within 1 year 1,164 8.55 3,028 9.63 155 9.77
Maturing after 1 year, but within 5 years 6,182 7.46 4,378 8.42 5,190 8.71
Maturing after 5 years, but within 10 years 19,061 7.54 20,371 7.48 18,852 7.95
Maturing after 10 years 20,817 7.22 32,907 7.24 37,496 1.36
------------------------------------------------------------------------------------------------------------------------------
Total securities $ 47,224 7.41% $ 60,684 7.52% $ 61,693 7.54%
==============================================================================================================================
/1/ Yields on tax-exempt securities have been computed on a taxable-equivalent basis.
/2/ Total securities excludes preferred stock at amortized cost of $5,899,358, $5,504,870, and $5,209,736 at December 31, 2001, 2000, and
1999, respectively ($5,468,496, $5,054,587, and $4,738,879 estimated fair value at December 31, 2001, 2000, and 1999, respectively).
SECURITIES
The investment portfolio plays a primary role in the management of interest rate sensitivity of the Corporation and generates substantial interest
income. In addition, the portfolio serves as a source of liquidity and is used as needed to meet collateral requirements.
The investment portfolio consists of two components, securities held to maturity and securities available for sale. Securities are classified as
held to maturity based on management's intent and the Corporation's ability, at the time of purchase, to hold such securities to maturity. These
securities are carried at amortized cost. Securities which may be sold in response to changes in market interest rates, changes in the securities'
prepayment risk, increases in loan demand, general liquidity needs, and other similar factors are classified as available for sale and are carried
at estimated fair value.
At year-end 2001, total securities were $53.9 million, down 17.90% from $65.7 million at year-end 2000. Mortgage backed securities
represented 3.6% of the total securities portfolio, obligations of states and political subdivisions were 86.3%, and preferred stocks were 10.1%
at December 31, 2001.
14
The Company adopted Financial Accounting Standards Board Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, effective January 1, 2001 and, as permitted by the Statement, transferred securities with a book value of $33,770,000 and a market
value of $34,836,000 to the available-for-sale category.
Table 10 presents information pertaining to the composition of the securities portfolio.
DEPOSITS
The Corporation's predominant source of funds is depository accounts. The Corporation's deposit base is comprised of demand deposits,
savings and money market accounts, and time deposits. The Corporation's deposits are provided by individuals and businesses located within
the communities served.
Total deposits increased $33.2 million, or 11.4%, in 2001 over 2000. In 2001, the growth by deposit category was a 7.7% increase in non-
interest-bearing deposits, an 11.9% increase in savings and interest-bearing demand deposits, and a 12.0% increase in time deposits. In 2000,
total deposits increased $29.8 million, or 11.4%, over 1999. Deposit growth in 2001 over 2000 was attributed to growth at existing branch
locations and to the opening of two new branches, CCB in Midlothian and the Bank in Sandston, offset by the sale of the Bank's Tappahannock
branch during 2001. Table 11 presents the average deposit balances and average rates paid for the years 2001, 2000, and 1999. Table 12 details
maturities of certificates of deposit with balances of $100,000 and over at December 31, 2001.
TABLE 11: Average Deposits and Rates Paid
Year Ended December 31,
---------------------------------------------
2001 2000 1999
--------- --------- ---------
Average Average Average Average Average Average
(Dollars in thousands) Balance Rate Balance Rate Balance Rate
------------------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing demand deposits $ 39,240 $ 31,511 $ 35,697
------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing transaction accounts 54,481 1.92% 50,977 2.42% 45,627 2.38%
Money market deposit accounts 26,290 3.05 25,938 3.38 25,207 3.20
Savings accounts 38,921 2.45 38,640 2.98 39,131 2.97
Certificates of deposit, $100M or more 32,421 5.46 22,955 5.52 17,977 4.77
Other certificates of deposit 119,535 5.55 96,004 5.42 89,467 4.94
------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 271,648 4.13% 234,514 4.15% 217,409 3.83%
------------------------------------------------------------------------------------------------------------------------------------
Total deposits $310,888 $266,025 $253,106
------------------------------------------------------------------------------------------------------------------------------------
TABLE 12: Maturities of Certificates of Deposit with Balances of $100,000 or More
(Dollars in thousands) December 31, 2001
------------------------------------------------------------------------------------------------------------------------------------
3 months or less $ 11,169
3-6 months 9,208
6-12 months 14,870
Over 12 months 3,234
------------------------------------------------------------------------------------------------------------------------------------
Total $ 38,481
------------------------------------------------------------------------------------------------------------------------------------
LIQUIDITY
Liquidity represents an institution's ability to meet present and future financial obligations through either the sale or maturity of existing assets
or the acquisition of additional funds through liability management. Liquid assets include
15
cash and due from banks, interest-bearing deposits with banks, federal funds sold, securities available for sale, and investments and loans
maturing within one year. As a result of the Corporation's management of liquid assets and the ability to generate liquidity through liability
funding, management believes that the Corporation maintains overall liquidity sufficient to satisfy its depositors' requirements and to meet
customers' credit needs.
At December 31, 2001, cash and cash equivalents and securities classified as available for sale were 17.9% of total earning assets, compared to
14.6% at December 31, 2000.
Additional sources of liquidity available to the Corporation include the Bank's capacity to borrow funds through an established line of credit
with a regional correspondent bank and from the FHLB.
CAPITAL RESOURCES
The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity, earnings performance, and changing
competitive conditions and economic forces. The adequacy of the Corporation's capital is reviewed by management on an ongoing basis.
Management seeks to maintain a structure that will assure an adequate level of capital to support anticipated asset growth and to absorb
potential losses.
During 2001 the Corporation repurchased 59,981 shares of its common stock in the open market at prices between $14.88 and $18.00 per
share. During 2000, the Corporation repurchased 85,000 shares of its common stock, in the open market at prices between $13.69 and $17.00
per share. During March of 1999, the Corporation repurchased 235,000 shares of its common stock in privately negotiated transactions at prices
between $19.88 and $20.00 per share and during the second half of 1999, the Corporation repurchased an additional 12,500 shares of its
common stock in the open market at prices between $17.00 and $18.00 per share. These repurchases were made to reduce capital since it was
high relative to the Corporation's asset size.
The Corporation's capital position continues to exceed regulatory requirements. The primary indicators relied on by bank regulators in
measuring the capital position are the Tier I capital, total risk-based capital, and leverage ratios. Tier I capital consists of common and
qualifying preferred shareholders' equity less goodwill. Total capital consists of Tier I capital, qualifying subordinated debt, and a portion of the
allowance for loan losses. Risk-based capital ratios are calculated with reference to risk-weighted assets. The Corporation's Tier I capital ratio
was 13.3% at December 31, 2001, compared to 14.4% at December 31, 2000. The total capital ratio was 14.4% at December 31, 2001
compared to 15.6% at December 31, 2000. These ratios are in excess of the mandated minimum requirements of 4.0% and 8.0%, respectively.
Shareholders' equity was $44.7 million at year-end 2001 compared to $38.8 million at year-end 2000. The leverage ratio consists of Tier I
capital divided by average assets. At December 31, 2001, the Corporation's leverage ratio was 10.8%, compared to 10.9% at December 31,
2000, which exceeds the required minimum leverage ratio of 4.0%. The dividend payout ratio was 25.7%, 32.7%, and 26.6%, in 2001, 2000,
and 1999, respectively. During 2001, the Corporation paid dividends of $0.58 per share, up 9.4% from $0.53 per share paid in 2000.
The Corporation is not aware of any current recommendations by any regulatory authorities which, if they were implemented, would have a
material effect on the Corporation's liquidity, capital resources, or results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued two statements - Statement 141, Business Combinations, and Statement 142,
Goodwill and Other Intangible Assets. Statement 141 eliminates the pooling method of
16
accounting for business combinations and requires that intangible assets that meet certain criteria be reported separately from goodwill. The
Statement also requires negative goodwill arising from a business combination to be recorded as an extraordinary gain. Statement 142
eliminates the amortization of goodwill and other intangibles that are determined to have an indefinite life. The Statement requires, at a
minimum, annual impairment tests for goodwill and other intangible assets that are determined to have an indefinite life.
Upon adoption of these Statements, an organization is required to re-evaluate goodwill and other intangible assets that arose from business
combinations entered into before July 1, 2001. If the recorded other intangible assets do not meet the criteria for recognition, they should be
classified as goodwill. Similarly, if there are other intangible assets that meet the criteria for recognition but were not separately recorded from
goodwill, they should be reclassified from goodwill. An organization also must reassess the useful lives of intangible assets and adjust the
remaining amortization periods accordingly. Any negative goodwill must be written-off.
The standards generally are required to be implemented by the Bank in its 2002 financial statements. The adoption of these standards is not
expected to have a material impact on the Corporation's financial statements.
In June 2001, the Financial Accounting Standards Board issued Statement 143 Accounting for Asset Retirement Obligations. This Statement
addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and associated
retirement costs. It requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred
and the associated asset retirement costs be capitalized as part of the carrying amount of the long-lived asset. This Statement is not expected to
have a material effect on the Corporation's financial statements.
In August 2001, the Financial Accounting Standards Board issued Statement 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. The Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. It also establishes a
single accounting model for long-lived assets to be disposed of by sale, which includes long-lived assets that are part of a discontinued
operation. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2001.
The Statement is not expected to have a material effect on the Corporation's financial statements.
EFFECTS OF INFLATION
The effect of changing prices on financial institutions is typically different from other industries as the Corporation's assets and liabilities are
monetary in nature. Interest rates are significantly impacted by inflation, but neither the timing nor the magnitude of the changes are directly
related to price-level indices. The consolidated financial statements reflect the impacts of inflation on interest rates, loan demands, and
deposits.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in this annual report that are not historical facts may constitute "forward-looking statements" as defined by federal
securities laws. These statements may address issues that involve estimates and assumptions made by management, risks and uncertainties, and
actual results could differ materially from historical results or those anticipated by such statements. Factors that could have a material adverse
effect on the operations and future prospects of the company include, but are not limited to, changes in:
interest rates, general economic conditions,
17
legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Board of
Governors of the Federal Reserve System, the quality or composition of the loan or investment portfolios, demand for loan products, deposit
flows, competition, demand for financial services in the Corporation's market area and accounting principles, policies and guidelines. These
risks and uncertainties should be considered in evaluating the forward-looking statements, and readers are cautioned not to place undue reliance
on such statements, which speak only as of their dates.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK MANAGEMENT
As the holding company for a commercial bank, the Corporation's primary component of market risk is interest rate volatility. Fluctuation in
interest rates will ultimately impact the level of both 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 Corporation's interest-earning assets and all of the Corporation's interest-bearing liabilities are held by the Bank, virtually all of
the Corporation'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 on 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 Virginia counties of King William, King and Queen, Hanover,
Henrico, Chesterfield, Middlesex, New Kent, Charles City, York, and James City, and is, therefore, subject to risks associated with the local
economy. As of December 31, 2001, the Corporation does not own any trading assets nor does it 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 on certain assumptions, to mature
or reprice within a specific time period and the amount of interest-bearing liabilities anticipated, based on 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 result.
Certain shortcomings are inherent in any method of rate analysis used to estimate a financial institution's interest rate sensitivity gap. The
analysis is based at a given point in time and does not take into consideration that changes in interest rates do not affect all assets and liabilities
equally. For example, although certain assets and liabilities may have
18
similar maturities or repricing, they may react differently to changes in market interest rates. The interest rates on certain types of assets and
liabilities also may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in
market rates. The interest rates on loans with call features may or may not change depending on their interest rates relative to market interest
rates.
The Corporation is also subject to prepayment risk, particularly in falling interest rate environments or in environments where the slope of the
yield curve is relatively flat or negative. Such changes in the interest rate environment can cause substantial changes in the level of
prepayments of loans, which may also affect the Corporation's interest rate sensitivity gap position.
As part of its borrowings, the Corporation may utilize, from time to time, daily, convertible and adjustable rate advances from the FHLB.
Convertible advances generally provide for a fixed rate of interest for a portion of the term of the advance, an ability for the FHLB to convert
the advance from a fixed rate to an adjustable rate at some predetermined time during the remaining term of the advance (the "conversion"
feature), and a concurrent opportunity for the Corporation to prepay the advance with no prepayment penalty in the event the FHLB elects to
exercise the conversion feature. At December 31, 2001, the Bank did not hold convertible advances from the FHLB. Also, the methodology
used estimates various rates of withdrawal for money market deposits, savings, and checking accounts, which may vary significantly from
actual experience.
TABLE 13: Interest Sensitivity Analysis
The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2001, that are
subject to repricing or that mature in each of the time periods shown. Additionally, loans and securities with call provisions are included in the
period in which they may first be called. Except as stated above, the amount of assets and liabilities shown that reprice or mature during a
particular period were determined in accordance with the contractual terms of the asset or liability.
Interest-Sensitive Periods
----------------------------------------------------------
Within 91-365 1-5 Over
(Dollars in thousands) 90 Days Days Years 5 Years Total
-----------------------------------------------------------------------------------------------------------------------------------
December 31, 2001
Earning assets:
Loans, net of unearned income $149,019 $ 25,283 $ 78,018 $66,739 $319,059
Securities 2,711 1,945 24,131 25,931 54,718
Federal funds sold and other short-term investments 930 - - - 930
-----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 152,660 27,228 102,149 92,670 374,707
-----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest-bearing transaction accounts 9,002 27,006 24,006 - 60,014
Savings accounts 6,213 18,640 16,569 - 41,422
Money market deposit accounts 4,511 13,533 12,029 - 30,073
Certificates of deposit, $100M or more 11,169 24,078 3,234 - 38,481
Other certificates of deposit 22,802 69,541 22,847 243 115,433
Borrowings 27,204 - - - 27,204
-----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 80,901 152,798 78,685 243 $312,627
-----------------------------------------------------------------------------------------------------------------------------------
Period gap 71,759 (125,570) 23,464 92,427
Cumulative gap $ 71,759 $ (53,811) $(30,347) $62,080
Ratio of cumulative gap to total earning assets 19.15% (14.36)% (8.10)% 16.57%
-----------------------------------------------------------------------------------------------------------------------------------
19
The following table provides information about the Corporation's financial instruments that are sensitive to changes in interest rates as of
December 31, 2001 and 2000, based on the information and assumptions set forth in the notes. The Corporation 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 on estimates of the period over which the deposits would be outstanding, as set forth in the notes. From a risk-management
perspective, however, the Corporation utilizes both maturity and repricing dates, as opposed to solely using expected maturity dates.
As shown in the table, there has been no significant changes in the maturities of interest-earning assets or interest-bearing liabilities as
compared to 2000. The increase in loans held for sale maturing within one year is a result of increased production at the Mortgage Corporation.
All loans originated at the Mortgage Corporation are usually sold within one month. The increase in borrowings is also a result of the increase
in loans held for sale. The decrease in the yield on interest earning assets and amount paid on interest-bearing liabilities is a result of the
decrease in interest rates throughout 2001.
20
TABLE 14: Maturity of Interest-Bearing Assets/Liabilities
Principal Amount Maturing in:
------------------------------------------------------------
(Dollars in thousands) 1 Year 2 Years 3 Years 4 Years 5 Years Thereafter Total Fair Value
----------------------------------------------------------------------------------------------------------------------------
Interest-Earning Assets:
Fixed rate loans /1, 2/
December 31, 2001 $ 28,366 $14,235 $10,870 $ 8,154 $ 7,183 $49,907 $118,715 $124,139
December 31, 2000 23,371 11,329 9,830 8,457 6,740 44,280 104,007 104,356
Average interest rate
December 31, 2001 8.12% 8.68% 8.43% 8.34% 8.25% 8.27% 8.30%
December 31, 2000 9.43% 8.89% 8.71% 8.53% 8.38% 8.43% 8.74%
Variable rate loans /1, 2/
December 31, 2001 $ 52,599 $16,492 $4,108 $ 4,759 $ 4,054 $50,026 $132,038 $135,612
December 31, 2000 46,426 10,372 5,489 5,039 4,516 58,690 130,532 130,574
Average interest rate
December 31, 2001 6.78% 6.76% 9.98% 8.12% 7.96% 7.74% 7.32%
December 31, 2000 10.43% 9.44% 8.90% 8.88% 8.79% 8.34% 9.23%
Loans held for sale
December 31, 2001 $ 69,263 $ - $ - $ - $ - $ - $ 69,263 $ 70,166
December 31, 2000 17,600 - - - - - 17,600 17,984
Average interest rate
December 31, 2001 6.69% - - - - - 6.69%
December 31, 2000 9.26% - - - - - 9.26%
Securities /3, 4/
December 31, 2001 $ 944 $ 1,504 $ 705 $ 781 $ 1,017 $49,767 $ 54,718 $ 55,548
December 31, 2000 1,385 1,148 1,504 806 1,084 61,856 67,783 68,484
Average interest rate
December 31, 2001 5.77% 5.85% 6.01% 5.58% 5.25% 5.27% 5.31%
December 31, 2000 5.43% 4.67% 4.73% 4.72% 4.39% 5.39% 5.34%
Interest-Bearing Liabilities:
Money market, savings, and interest-
bearing transaction accounts /5/
December 31, 2001 $ 78,905 $13,151 $13,151 $13,151 $13,151 $ - $131,509 $132,312
December 31, 2000 70,540 11,757 11,757 11,757 11,756 - 117,567 118,590
Average interest rate
December 31, 2001 1.79% 1.79% 1.79% 1.79% 1.79% - 1.79%
December 31, 2000 2.72% 2.72% 2.72% 2.72% 2.72% - 2.72%
Certificates of deposit
December 31, 2001 $127,590 $17,309 $ 5,488 $ 1,450 $ 1,833 $ 244 $153,914 $156,115
December 31, 2000 117,552 12,186 4,232 1,385 1,387 645 137,387 137,505
Average interest rate
December 31, 2001 4.40% 4.77% 5.17% 6.20% 5.35% 2.38% 4.49%
December 31, 2000 6.07% 5.86% 5.83% 5.21% 6.23% 4.36% 6.03%
Borrowings
December 31, 2001 $ 22,204 $ 5,000 $ - $ - $ - $ - $ 27,204 $ 27,190
December 31, 2000 13,969 - - - - - 13,969 13,969
Average interest rate
December 31, 2001 1.74% 5.35% - - - - 2.40%
December 31, 2000 5.66% - - - - - 5.66%
----------------------------------------------------------------------------------------------------------------------------
/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/ Includes the Corporation's investment in Federal Home Loan Bank stock. /4/ Average interest rates are the average of stated coupon rates
and have not been adjusted for taxes.
/5/ Assumes an annual decay rate of 60% for year 1 and 10% for each of the years 2 through 5.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------------
2001 2000
-----------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks $ 10,127,368 $ 8,922,524
Interest-bearing deposits in other banks 929,549 5,915,378
-----------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 11,056,917 14,837,902
Securities--available for sale at fair value, amortized cost of
$53,123,058 and $32,418,548, respectively 53,952,938 31,913,344
Securities--held to maturity at amortized cost, fair value of
$0 and $34,835,759, respectively -- 33,769,925
Loans held for sale, net 69,263,294 17,600,164
Loans, net of reserve for loan losses of $3,683,658 and $3,608,966,
respectively 246,112,369 229,943,715
Federal Home Loan Bank stock 1,595,000 1,595,000
Corporate premises and equipment, net 14,638,441 9,889,649
Accrued interest receivable 2,134,218 2,403,921
Other assets 5,322,797 5,518,052
-----------------------------------------------------------------------------------------------------------
Total assets $404,075,974 $347,471,672
-----------------------------------------------------------------------------------------------------------
Liabilities
Deposits
Non-interest-bearing demand deposits $ 38,489,428 $ 35,734,625
Savings and interest-bearing demand deposits 131,508,973 117,566,594
Time deposits 153,914,100 137,386,817
-----------------------------------------------------------------------------------------------------------
Total deposits 323,912,501 290,688,036
Borrowings 27,203,667 13,969,173
Accrued interest payable 811,088 992,852
Other liabilities 7,405,695 3,041,161
-----------------------------------------------------------------------------------------------------------
Total liabilities 359,332,951 308,691,222
-----------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities
Shareholders' Equity
Preferred stock ($1.00 par value, 3,000,000 shares authorized) -- --
Common stock ($1.00 par value, 8,000,000 shares authorized,
3,526,126 and 3,571,039 shares issued and outstanding at
December 31, 2001 and 2000, respectively) 3,526,126 3,571,039
Additional paid-in capital 46,871 20,133
Retained earnings 40,622,304 35,522,711
Accumulated other comprehensive income (loss), net of tax of
$282,159 and ($171,771), respectively 547,722 (333,433)
-----------------------------------------------------------------------------------------------------------
Total shareholders' equity 44,743,023 38,780,450
-----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $404,075,974 $347,471,672
-----------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
22
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
------------------------------------------
2001 2000 1999
------------------------------------------------------------------------------------------------------------------------
Interest income
Interest and fees on loans $24,809,972 $22,244,860 $19,405,445
Interest on money market investments
Federal funds sold 2,005 -- 90,964
Other money market investments 97,846 563,687 366,971
Interest on securities
U.S. Treasury securities 29,663 80,193 109,112
U.S. government agencies and corporations 439,380 953,900 864,461
Tax-exempt obligations of states and political subdivisions 2,385,946 2,455,762 2,347,868
Corporate bonds and other 469,573 123,077 458,736
------------------------------------------------------------------------------------------------------------------------
Total interest income 28,234,385 26,421,479 23,643,557
------------------------------------------------------------------------------------------------------------------------
Interest expense
Savings and interest-bearing deposits 2,799,884 3,263,427 3,055,792
Certificates of deposit, $100M or more 1,768,972 1,266,707 856,670
Other time deposits 6,639,327 5,202,728 4,415,594
Short-term borrowings and other 776,209 1,576,537 739,811
------------------------------------------------------------------------------------------------------------------------
Total interest expense 11,984,392 11,309,399 9,067,867
------------------------------------------------------------------------------------------------------------------------
Net interest income 16,249,993 15,112,080 14,575,690
Provision for loan losses 400,000 400,000 600,000
------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 15,849,993 14,712,080 13,975,690
------------------------------------------------------------------------------------------------------------------------
Other operating income
Gain on sale of loans 10,389,684 5,008,850 6,691,998
Service charges on deposit accounts 1,442,253 1,335,679 1,154,373
Other service charges and fees 3,210,921 1,674,937 1,949,714
Gain on calls of available for sale securities 6,000 100,157 138,830
Gain on sale of branch 1,176,279 -- --
Other income 1,195,482 825,439 1,069,541
------------------------------------------------------------------------------------------------------------------------
Total other operating income 17,420,619 8,945,062 11,004,456
------------------------------------------------------------------------------------------------------------------------
Other operating expenses
Salaries and employee benefits 13,442,765 9,603,442 9,365,548
Occupancy expenses 2,886,245 2,377,608 2,044,013
Goodwill amortization 267,860 275,160 275,160
Other expenses 5,367,223 3,742,170 4,144,829
------------------------------------------------------------------------------------------------------------------------
Total other operating expenses 21,964,093 15,998,380 15,829,550
------------------------------------------------------------------------------------------------------------------------
Income before income taxes 11,306,519 7,658,762 9,150,596
Income tax expense 3,317,802 1,822,731 2,394,366
------------------------------------------------------------------------------------------------------------------------
Net income $ 7,988,717 $ 5,836,031 $ 6,756,230
------------------------------------------------------------------------------------------------------------------------
Earnings per common share--basic $ 2.25 $ 1.62 $ 1.83
------------------------------------------------------------------------------------------------------------------------
Earnings per common share--assuming dilution $ 2.23 $ 1.60 $ 1.81
------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
23
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated
Additional Other
Common Paid-In Comprehensive Retained Comprehensive
Stock Capital Income Earnings Income (Loss) Total
-----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 $3,866,888 $ 475,928 $31,739,483 $ 565,194 $36,647,493
Repurchase of common stock (247,500) (690,351) (3,971,173) -- (4,909,024)
Stock options exercised 25,068 228,819 -- -- 253,887
Comprehensive income
Net income $ 6,756,230 6,756,230 6,756,230
Other comprehensive income, net of
tax
Unrealized holding losses arising
during the period net of tax of
$938,495 (1,821,784) (1,821,784) (1,821,784)
-----------
Comprehensive income $ 4,934,446
-----------
Cash dividends ($.49 per share) -- -- (1,797,092) -- (1,797,092)
-----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1999 3,644,456 14,396 32,727,448 (1,256,590) 35,129,710
Repurchase of common stock (85,000) (114,272) (1,130,139) -- (1,329,411)
Stock options exercised 11,583 120,009 -- -- 131,592
Comprehensive income
Net income $ 5,836,031 5,836,031 5,836,031
Other comprehensive income, net of
tax
Unrealized holding gains arising
during the period net of tax of
$475,566 923,157 923,157 923,157
-----------
Comprehensive income $ 6,759,188
-----------
Cash dividends ($.53 per share) -- -- (1,910,629) -- (1,910,629)
-----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2000 3,571,039 20,133 35,522,711 (333,433) 38,780,450
Repurchase of common stock (59,981) (121,308) (833,031) -- (1,014,320)
Stock options exercised 15,068 148,046 -- -- 163,114
Comprehensive income
Net income $ 7,988,717 7,988,717 7,988,717
Other comprehensive income, net of
tax
Unrealized holding gains arising
during the period net of tax of
$453,928 881,155 881,155 881,155
-----------
Comprehensive income $ 8,869,872
-----------
Cash dividends ($.58 per share) -- -- (2,056,093) -- (2,056,093)
-----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2001 $3,526,126 $ 46,871 $40,622,304 $ 547,722 $44,743,023
===================================================================================================================================
Disclosure of reclassification amount for the year ended December 31:
2001 2000 1999
------------------------------------------------------------------------------------------------------------------
Unrealized net holding gains (losses) arising during period $885,115 $989,272 $(1,730,156)
Less: reclassification adjustment for gains
included in net income 3,960 66,115 91,628
-------- -------- ------------
Net unrealized gains (losses) on securities $881,155 $923,157 $(1,821,784)
======== ======== ============
See notes to consolidated financial statements.
24
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------------------
2001 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 7,988,717 $ 5,836,031 $ 6,756,230
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 1,336,192 1,018,342 928,314
Amortization of goodwill 267,860 275,160 275,160
Deferred income taxes (37,024) (154,178) (123,139)
Provision for loan losses 400,000 400,000 600,000
Accretion of discounts and amortization of premiums
on securities, net (49,035) (45,047) (69,467)
Net realized gain on securities (6,000) (100,157) (138,830)
Origination of loans held for sale (627,303,955) (294,483,773) (456,926,073)
Sale of loans 575,640,825 301,770,123 499,032,881
Gain on sale of branch (1,176,279) -- --
Change in other assets and liabilities:
Accrued interest receivable 269,703 (267,828) 237,690
Other assets (489,510) (485,864) (881,041)
Accrued interest payable (181,764) 426,386 (31,680)
Other liabilities 4,364,534 384,756 (4,353,878)
-----------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (38,975,736) 14,573,951 45,306,167
-----------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Proceeds from maturities of securities held to maturity -- 1,060,000 3,628,850
Proceeds from maturities and calls of securities available for
sale 17,297,400 906,576 10,806,084
Purchase of securities available for sale (4,176,950) (1,107,101) (21,287,142)
Redemption (purchase) of FHLB stock -- (10,000) 121,200
Net increase in customer loans (19,233,654) (24,227,819) (36,797,468)
Purchase of corporate premises and equipment (6,426,178) (2,503,902) (2,867,029)
Sale of branch (10,857,527) -- --
-----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (23,396,909) (25,882,246) (46,395,505)
-----------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Net increase (decrease) in demand, interest-bearing demand
and savings deposits 23,615,182 (3,171,413) 13,933,670
Net increase (decrease) in time deposits 24,649,283 33,005,814 (4,753,194)
Net increase (decrease) in other borrowings 13,234,494 (16,066,120) 5,374,215
Repurchase of common stock (1,014,320) (1,329,411) (4,909,024)
Proceeds from exercise of stock options 163,114 131,592 253,887
Cash dividends (2,056,093) (1,910,629) (1,797,092)
-----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 58,591,660 10,659,833 8,102,462
-----------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (3,780,985) (648,462) 7,013,124
Cash and cash equivalents at beginning of year 14,837,902 15,486,364 8,473,240
-----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 11,056,917 $ 14,837,902 $ 15,486,364
-----------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure
Interest paid $ 12,166,156 $ 10,883,013 $ 9,099,547
Income taxes paid $ 2,805,205 $ 1,735,591 $ 2,743,114
===================================================================================================================================
See notes to consolidated financial statements.
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Summary of Significant Accounting Policies
The accounting and reporting policies of C&F Financial Corporation and subsidiary (the "Corporation") conform to accounting principles
generally accepted in the United States of America and to predominant practices within the banking industry.
Nature of Operations: C&F Financial Corporation is a bank holding company incorporated under the laws of the Commonwealth of Virginia.
The Corporation 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 offers a wide range of banking services available to both
individuals and businesses.
The Bank has four wholly owned subsidiaries, C&F Title Agency, Inc., C&F Investment Services, Inc., C&F Mortgage Corporation, and C&F
Insurance Services, Inc., all incorporated under the laws of the Commonwealth of Virginia. C&F Title Agency, Inc., organized in October
1992, sells title insurance to the mortgage loan customers of the Bank and C&F Mortgage Corporation. C&F Investment Services, Inc.,
organized in April 1995, is a full-service brokerage firm offering a comprehensive range of investment services. C&F Mortgage Corporation,
organized in September 1995, was formed to originate and sell residential mortgages. C&F Insurance Services, organized in July 1999, owns
an equity interest in an insurance agency which sells insurance products to customers of the bank, C&F Mortgage Corporation and other
financial institutions which have an equity interest in the agency.
Principles of Consolidation: The accompanying consolidated financial statements include the accounts of C&F Financial Corporation and its
wholly owned subsidiary, Citizens and Farmers Bank. All material intercompany accounts and transactions have been eliminated in
consolidation.
Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
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.
Interest-bearing Deposits in Banks: Interest-bearing deposits in banks mature within one year and are carried at cost.
Securities: Investments in debt and equity securities with readily determinable fair values are classified as either held to maturity, available for
sale, or trading, based on management's intent. Available for sale securities are carried at estimated fair value with the corresponding unrealized
gains and losses included in shareholders' equity on an after-tax basis. Securities classified as held to maturity are carried at amortized cost. The
Corporation does not have any securities classified as trading securities. Gains or losses are recognized only on realization at the time of sale
using the amortized cost of the specific security sold.
Federal Home Loan Bank Stock: Federal Home Loan Bank stock is stated at cost. No ready market exists for this stock, and it has no quoted
market value. For presentation purposes, such stock is assumed to have market value which is equal to cost. In addition, such stock is not
considered a debt or equity security in accordance with Statement of Financial Accounting Standards 115.
Loans: Loans are stated at face value, net of unearned discount and the allowance for loan losses. Unearned discount on certain installment
loans is recognized as income over the terms of the loans by a method which approximates the effective interest method. Interest on other loans
is credited to operations based on the principal amount outstanding. Loans are generally placed on non-accrual status when the collection of
principal or interest is ninety days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the
collateral and the financial strength of the borrower. Loans greater than ninety days past due may remain on accrual status if management
determines it has adequate collateral to cover the principal and interest. For those loans which are carried on non-accrual status, interest is
recognized on the cash basis. Loan fees and origination costs are deferred and the net amount is amortized as an adjustment of the related loan's
yield using the level-yield method. The Corporation is amortizing these amounts over the contractual life of the related loans.
26
Impaired loans are measured based on the present value of expected future cash flows discounted at the effective interest rate of the loan (or, as
a practical expedient, at the loan's observable market price) or the fair value of the collateral if the loan is collateral dependent. The Corporation
considers a loan impaired when it is probable that the Corporation will be unable to collect all interest and principal payments as scheduled in
the loan agreement. A loan is not considered impaired during a period of delay in payment if the ultimate collectibility of all amounts due is
expected. A valuation allowance is maintained to the extent that the measure of the impaired loan is less than the recorded investment.
Consistent with the Corporation's method for non-accrual loans, interest receipts for impaired loans are recognized on the cash basis.
Loans Held for Sale: Loans held for sale are carried at the lower of cost or market, determined in the aggregate. Market value considers
commitment agreements with investors and prevailing market prices. Substantially all loans originated by the mortgage banking operations are
held for sale to outside investors.
Other Real Estate Owned: Foreclosed assets held for sale are carried at the lower of (a) fair value minus estimated costs to sell or (b) cost at the
time of foreclosure. Such determination is made on an individual asset basis. If the fair value of the asset minus the estimated costs to sell the
asset is less than the cost of the asset, the deficiency is recognized as a valuation allowance. If the fair value of the asset minus the estimated
costs to sell the asset subsequently increases and the fair value of the asset minus the estimated costs to sell the asset is more than its carrying
amount, the valuation allowance is reduced, but not below zero. Increases or decreases in the valuation allowance are charged or credited to
income.
Corporate Premises and Equipment: Corporate premises and equipment are carried at cost less accumulated depreciation computed using a
straight-line method over the estimated useful lives of the assets. Estimated useful lives range from ten to forty years for buildings and from
three to ten years for equipment, furniture, and fixtures. Maintenance and repairs are charged to expense as incurred and major improvements
are capitalized. Upon sale or retirement of depreciable properties, the cost and related accumulated depreciation are netted against proceeds and
any resulting gain or loss is reflected in income.
Income Taxes: The Corporation uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income
tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are
expected to affect taxable income. Income tax expense is the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
Reserve for Loan Losses: The reserve for loan losses is established through a provision for loan losses charged to expense. The reserve
represents an amount which, in management's judgment, will be adequate to absorb any losses on existing loans which may become
uncollectible. Management's judgment in determining the adequacy of the reserve is based on evaluations of the collectibility of loans while
taking into consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions which may affect
a borrower's ability to repay, overall portfolio quality, and review of specific potential losses. Loans are charged against the reserve for loan
losses when management believes that the collectibility of the principal is unlikely. Actual future losses may differ from estimates as a result of
unforeseen events.
Comprehensive Income: Accounting principles generally require that recognized revenue, expenses, gains, and losses be included in net
income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a
separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.
Earnings Per Common Share: Basic earnings per share represents income available to common shareholders divided by the weighted average
number of common shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been
outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed
issuance. Potential common shares that may be issued by the Corporation relate solely to outstanding stock options, and are determined using
the treasury stock method.
27
Shareholders' Equity: During 2001 the Corporation repurchased 59,981 shares of its common stock in the open market at prices between
$14.88 and $18.00 per share. During 2000, the Corporation repurchased 85,000 shares of its common stock in the open market at prices
between $13.69 and $17.00 per share. During March 1999, the Corporation repurchased 235,000 shares of its common stock from six
shareholders at prices between $19.88 and $20.00 per share in privately negotiated transactions. During the second half of 1999, the
Corporation repurchased an additional 12,500 shares of its common stock in the open market at prices between $17.00 and $18.00 per share.
Statement of Cash Flows: For the purpose of the statement of cash flows, the Corporation considers cash equivalents to include amounts due
from banks, federal funds sold, and money market investments purchased with a maturity of three months or less. Generally, federal funds are
purchased and sold for one-day periods.
Reclassifications: Certain reclassifications have been made to prior period amounts to conform to the current year presentation.
NOTE 2: Securities
Debt and equity securities are summarized as follows:
December 31, 2001
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Available for Sale Cost Gains Losses Fair Value
----------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $ 1,947,440 $ -- $ (23,064) $ 1,924,376
Obligations of states and political subdivisions 45,276,293 1,384,319 (100,546) 46,560,066
Preferred stock 5,899,325 86,840 (517,669) 5,468,496
----------------------------------------------------------------------------------------------------------------------------------
$53,123,058 $1,471,159 $ (641,279) $53,952,938
==================================================================================================================================
December 31, 2000
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Available for Sale Cost Gains Losses Fair Value
----------------------------------------------------------------------------------------------------------------------------------
U.S. government agencies and corporations $13,500,000 $ -- $ (201,649) $13,298,351
Obligations of states and political subdivisions 13,413,678 219,405 (52,677) 13,580,406
Preferred stock 5,504,870 7,313 (477,596) 5,034,587
----------------------------------------------------------------------------------------------------------------------------------
$32,418,548 $ 226,718 $ (731,922) $31,913,344
----------------------------------------------------------------------------------------------------------------------------------
Held to Maturity
----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $ 999,950 $ 8,179 $ -- $ 1,008,129
Obligations of states and political subdivisions 32,769,975 1,059,569 (1,914) 33,827,630
----------------------------------------------------------------------------------------------------------------------------------
$33,769,925 $1,067,748 $ (1,914) $34,835,759
==================================================================================================================================
The amortized cost and estimated fair value of securities at December 31, 2001, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.
28
December 31, 2001
------------------------------
Amortized Estimated
Available for Sale Cost Fair Value
--------------------------------------------------------------------------------
Due in one year or less $1,163,403 $1,180,146
Due after one year through five years 6,181,857 6,318,720
Due after five years through ten years 19,061,079 19,838,185
Due after ten years 20,817,394 21,147,391
Preferred Stock 5,899,325 5,468,496
--------------------------------------------------------------------------------
$53,123,058 $53,952,938
================================================================================
Proceeds from the maturities and the calls of securities available for sale in 2001 were $17,297,400, resulting in gross realized gains of $6,000.
The amortized cost and estimated fair value of securities pledged to secure public deposits amounted to $11,484,000 and $11,938,000,
respectively, at December 31, 2001.
Proceeds from the maturities and calls of securities held to maturity in 2000 were $1,060,000. There were no realized gains or losses. Proceeds
from the maturities and the calls of securities available for sale were $906,576, resulting in gross realized gains of $100,157.
Proceeds from maturities and the calls of securities held to maturity in 1999 were $3,628,850. There were no realized gains or losses. Proceeds
from maturities and the calls of securities available for sale were $10,806,084, resulting in gross realized gains of $138,830.
The Company adopted Financial Accounting Standards Board Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, effective January 1, 2001 and, as permitted by the Statement, transferred securities with a book value of $33,770,000 and a market
value of $34,836,000 to the available-for-sale category.
NOTE 3: Loans
Major classifications of loans are summarized as follows:
December 31,
-------------------------------
2001 2000
--------------------------------------------------------------------------------
Real estate--mortgage $ 81,924,063 $ 87,428,166
Real estate--construction 8,829,850 9,109,165
Commercial, financial, and agricultural 137,374,333 113,570,467
Equity lines 11,283,617 11,616,307
Consumer 11,341,663 12,815,274
--------------------------------------------------------------------------------
250,753,526 234,539,379
Less unearned loan fees (957,499) (986,698)
--------------------------------------------------------------------------------
249,796,027 233,552,681
Less reserve for loan losses (3,683,658) (3,608,966)
--------------------------------------------------------------------------------
$246,112,369 $229,943,715
================================================================================
Loans on non-accrual status were $1,026,000 and $473,000 at December 31, 2001 and 2000, respectively. If interest income had been
recognized on non-performing loans at their stated rates during fiscal years 2001, 2000, and 1999, interest income would have increased by
approximately $91,000, $37,000, and $8,000, respectively. The balance of impaired loans at December 31, 2001 and 2000, was $1,026,000 and
$473,000 respectively, with no specific valuation allowance associated with these loans. The average balance of impaired loans for 2001 and
2000 were $513,000 and $357,000, respectively.
29
NOTE 4: Reserve for Loan Losses
Changes in the reserve for loan losses were as follows:
Year Ended December 31,
------------------------------
2001 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
Balance at the beginning of year $3,608,966 $3,301,778 $2,760,263
Provision charged to operations 400,000 400,000 600,000
Loans charged off (349,784) (101,733) (86,220)
Recoveries of loans previously charged off 24,476 8,921 27,735
-----------------------------------------------------------------------------------------------------------------------------------
Balance at the end of year $3,683,658 $3,608,966 $3,301,778
-----------------------------------------------------------------------------------------------------------------------------------
NOTE 5: Corporate Premises and Equipment
Major classifications of corporate premises and equipment are summarized as follows:
December 31,
--------------------
2001 2000
------------------------------------------------------------------------------------------------------------------------------------
Land $ 3,523,577 $ 2,308,838
Buildings 10,108,440 7,018,997
Equipment, furniture, and fixtures 10,962,859 9,459,348
------------------------------------------------------------------------------------------------------------------------------------
24,594,876 18,787,183
Less accumulated depreciation (9,956,435) (8,897,534)
------------------------------------------------------------------------------------------------------------------------------------
$14,638,441 $ 9,889,649
------------------------------------------------------------------------------------------------------------------------------------
NOTE 6: Time Deposits
Time deposits are summarized as follows:
December 31,
----------------------
2001 2000
------------------------------------------------------------------------------------------------------------------------------------
Certificates of deposit, $100M or more $ 38,481,546 $ 27,018,509
Other time deposits 115,432,554 110,368,308
------------------------------------------------------------------------------------------------------------------------------------
$153,914,100 $137,386,817
------------------------------------------------------------------------------------------------------------------------------------
Remaining maturities on time deposits are as follows:
Year ending December 31,
------------------------------------------------------------------------------------------------------------------------------------
2002 $127,590,499
2003 17,309,102
2004 5,488,385
2005 1,450,373
2006 2,075,741
------------------------------------------------------------------------------------------------------------------------------------
$153,914,100
------------------------------------------------------------------------------------------------------------------------------------
30
NOTE 7: Borrowings
Short-term borrowings consist of securities sold under agreements to repurchase which are secured transactions with customers and generally
mature the day following the date sold. Short-term borrowings also include advances from the FHLB, which are secured by a blanket floating
lien on all real estate mortgage loans secured by one-to-four family residential properties. The balance outstanding on loans subject to the
FHLB lien was $81,924,000 on December 31, 2001.
The table below presents selected information on short-term borrowings:
December 31,
-------------------------
2001 2000
--------------------------------------------------------------------------------------------------------------------------------
Balance outstanding at year end $22,203,667 $ 8,969,173
Maximum balance at any month-end during the year $25,666,748 $28,103,898
Average balance for the year 14,628,473 $22,676,362
Weighted average rate for the year 4.26% 6.12%
Weighted average rate on borrowings at year-end 1.86% 5.45%
Estimated fair value $22,203,522 $ 8,969,173
--------------------------------------------------------------------------------------------------------------------------------
The Corporation has unused lines of credit for borrowings totaling approximately $89,305,000 at December 31, 2001.
Long-term borrowings consist of adjustable-rate advances from the FHLB. At December 31, 2001, adjustable-rate advances totaled $5,000,000
with an interest rate of 5.45% and a maturity date of May 19, 2003. At December 31, 2000, adjustable-rate advances totaled $5,000,000 with an
interest rate of 6.55% and a maturity date of May 19, 2003. These advances are also secured by a blanket floating lien on all real estate
mortgage loans secured by one-to-four family residential properties.
NOTE 8: Earnings Per Share
The following shows the weighted average number of shares used in computing earnings per share and the effect on weighted average number
of shares of diluted potential common stock.
December 31,
--------------------------------
2001 2000 1999
--------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares used in earnings per
common share--basic 3,547,873 3,608,673 3,684,796
Effect of dilutive securities:
Stock options 39,434 31,641 53,438
--------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares used in earnings per
common share--assuming dilution 3,587,307 3,640,314 3,738,234
--------------------------------------------------------------------------------------------------------------------------------
Options on approximately 89,000, 175,000 and 15,000 shares were not included in computing earnings per common share--assuming dilution
for the years ended December 31, 2001, 2000, and 1999, respectively, because their effects were antidilutive.
NOTE 9: Income Taxes
Principal components of income tax expense as reflected in the consolidated statements of income are as follows:
Year Ended December 31,
---------------------------------
2001 2000 1999
--------------------------------------------------------------------------------------------------------------------------------
Current taxes $3,354,826 $1,976,909 $2,517,505
Deferred taxes (37,024) (154,178) (123,139)
--------------------------------------------------------------------------------------------------------------------------------
$3,317,802 $1,822,731 $2,394,366
--------------------------------------------------------------------------------------------------------------------------------
31
The income tax provision is less than would be obtained by application of the statutory federal corporate tax rate to pre-tax accounting income
as a result of the following items:
Year Ended December 31,
------------------------------------------------------------------------
Percent Percent Percent
of of of
Pre-tax Pre-tax Pre-tax
2001 Income 2000 Income 1999 Income
-----------------------------------------------------------------------------------------------------------------------------------
Income tax computed at federal statutory rates $3,844,216 34.0% $2,603,979 34.0% $3,111,203 34.0%
Tax effect of exclusion of interest income on
obligations of states and political subdivisions (850,319) (7.5) (879,995) (11.5) (833,784) (9.1)
Reduction of interest expense incurred to carry tax-
exempt assets 105,654 .9 116,418 1.5 94,336 1.0
State income taxes, net of federal tax benefit 203,782 1.8 59,348 .8 128,383 1.4
Tax effect of dividends-received deduction on
preferred stock (82,712) (.7) (83,036) (1.1) (79,695) (.9)
Other 97,181 .8 6,017 .1 (26,077) (.3)
-----------------------------------------------------------------------------------------------------------------------------------
$3,317,802 29.3% $1,822,731 23.8% $2,394,366 26.1%
===================================================================================================================================
Other assets include deferred income taxes of $1,343,638 and $1,760,544 at December 31, 2001 and 2000, respectively. The tax effects of each
type of significant item that gave rise to deferred taxes are:
Year Ended December 31,
---------------------------
2001 2000
-----------------------------------------------------------------------------------------------------------------------------------
Deferred tax asset
Allowance for loan losses $1,136,137 $1,097,141
Deferred compensation 348,194 244,953
Net unrealized loss on securities available for sale -- 171,771
Interest on non-accrual loans 30,869 12,631
Accrued pension -- 46,697
Intangible asset 73,321 177,248
Other 54,718 46,877
-----------------------------------------------------------------------------------------------------------------------------------
Deferred tax asset 1,643,239 1,797,318
-----------------------------------------------------------------------------------------------------------------------------------
Deferred tax liability
Depreciation (17,442) (36,774)
Net unrealized gain on securities available for sale (282,159) --
-----------------------------------------------------------------------------------------------------------------------------------
Deferred tax liability (299,601) (36,774)
-----------------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset $1,343,638 $1,760,544
===================================================================================================================================
NOTE 10: Employee Benefit Plans
The Bank maintains a Defined Contribution Profit-Sharing Plan (the "Profit-Sharing Plan") sponsored by the Virginia Bankers Association.
The Profit-Sharing Plan was amended effective January 1, 1997, to include a 401(k) savings provision which authorizes a maximum voluntary
salary deferral of up to 15% of compensation (with a partial company match), subject to statutory limitations. The Profit-Sharing Plan provides
for an annual discretionary contribution to the account of each eligible employee based in part on the Bank's profitability for a given year and
on each participant's yearly earnings. All full-time employees who have attained the age of eighteen and have at least three months of service
are eligible to participate. Contributions and earnings may be invested in various investment vehicles offered through the Virginia Bankers
Association. Contributions and earnings are tax-deferred. An employee is 20% vested after three years of service, 40% after four years, 60%
after five years, 80% after six years, and fully vested after seven years. The amounts charged to expense under this plan were $385,805,
$347,552, and $293,584, in 2001, 2000, and 1999, respectively.
32
The Mortgage Corporation maintains a Defined Contribution 401(k) Savings Plan which authorizes a maximum voluntary salary deferral of up
to 15% of compensation, subject to statutory limitations. All full-time employees who have attained the age of eighteen are eligible to
participate on the first day of the next month following employment date. The Mortgage Corporation reserves the right for an annual
discretionary contribution to the account of each eligible employee based in part on the Mortgage Corporation's profitability for a given year,
and on each participant's yearly earnings. An employee is vested 25% after two years of service, 50% after three years of service, 75% after
four years of service, and fully vested after five years. The amount charged to expense under the Plan was $279,500, $53,000, and $160,000,
for 2001, 2000, and 1999, respectively.
The Bank adopted a Management Incentive Bonus Plan (the "Bonus Plan") effective January 1, 1987. The Bonus Plan is offered to selected
members of management. The Bonus Plan is derived from a pool of funds determined by the Bank's total performance relative to (1) prescribed
growth-rates of assets and deposits, (2) return on average assets, and (3) absolute level of net income. Attainment, in whole or in part, of these
goals dictates the amount set aside in the pool of funds. Evaluation of attainment and approval of the pool amount are performed by the Board.
Payment of the bonus is based on individual performance and is paid in cash. Expense is accrued in the fiscal year of the specified bonus
performance. Expenses under this plan were $242,500, $204,300, and $173,200, in 2001, 2000, and 1999, respectively.
The Bank has a non-qualified defined contribution plan for certain executives. The plan allows for elective salary and bonus deferrals. The plan
also allows for employer contributions to make up for arbitrary limitations on covered compensation imposed by the Internal Revenue Code
with respect to the Bank's Profit Sharing/401(k) Plans and to enhance retirement benefits by providing supplemental contributions from time to
time. Expenses under this plan were $32,350 and $25,200 in 2001 and 2000, respectively. There were no expenses under the plan for 1999.
The Bank has a non-contributory, defined benefit pension plan for full-time employees over twenty-one years of age. Benefits are generally
based upon years of service and average compensation for the five highest-paid consecutive years of service. The Bank funds pension costs in
accordance with the funding provisions of the Employee Retirement Income Security Act. Information about the plan follows:
Year Ended December 31,
-----------------------
2001 2000
--------------------------------------------------------------------------------------------------------------------------
Change in Benefit Obligation
Benefit obligation, beginning $2,017,537 $1,741,750
Service cost 227,178 178,489
Interest cost 151,185 130,501
Actuarial (gain)/loss (39,910) 80,457
Benefits paid (3,248) (113,660)
--------------------------------------------------------------------------------------------------------------------------
Benefit obligation, ending $2,352,742 $2,017,537
--------------------------------------------------------------------------------------------------------------------------
Change in Plan Assets
Fair value of plan assets, beginning $2,212,205 $1,862,559
Actual return on plan assets (312,236) 285,634
Employer contributions 324,525 177,672
Benefits paid (3,248) (113,660)
---------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets, ending $2,221,246 $2,212,205
---------------------------------------------------------------------------------------------------------------------------
Funded status $ 131,496) $ 194,668
Unrecognized net actual gain 160,991 (309,717)
Unrecognized net obligation at transition (54,134) (59,547)
Unrecognized prior service cost 34,151 37,255
--------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 9,512 $ (137,341)
--------------------------------------------------------------------------------------------------------------------------
33
Year Ended December 31,
-------------------------------------------
2001 2000 1999
-------------------------------------------------------------------------------------------------------
Components of Net Periodic Benefit Cost
Service cost $ 227,178 $ 178,489 $ 161,535
Interest cost 151,185 130,501 118,101
Expected return on plan assets (193,322) (149,027) (115,003)
Amortization of prior service cost 3,104 3,104 3,104
Amortization of net obligation at transition (5,413) (5,413) (5,413)
Recognized net actuarial gain (5,060) (3,970) (4)
-------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 177,672 $ 153,684 $ 162,320
-------------------------------------------------------------------------------------------------------
Weighted-Average Assumptions as of December 31
Discount rate 7.5% 7.5% 7.5%
Expected return on plan assets 9.0 9.0 9.0
Rate of compensation increase 4.0 4.0 4.0
=======================================================================================================
NOTE 11: Related Party Transactions
Loans to directors and officers totaled $1,040,000 and $812,000 at December 31, 2001 and 2000, respectively. New advances to directors and
officers totaled $527,000 and repayments totaled $299,000 in the year ended December 31, 2001.
NOTE 12: Stock Options
Under the Incentive Stock Option Plan ("the Plan"), options to purchase common stock are granted to certain key employees of the
Corporation. Options are issued to employees at a price equal to the fair market value of common stock at the date granted. For options granted
prior to December 21, 1999, one-third of the options granted are exercisable commencing one year after the grant date with an additional one-
third becoming exercisable after each of the following two years. Options granted on or after December 21, 1999, become exercisible five years
after the grant date. In 1983, the shareholders authorized 100,000 shares of common stock for issuance under the Plan. An additional 200,000
and 300,000 shares were authorized for the Plan in 1994 and 2000, respectively. All options expire ten years from the grant date.
In 1998, the Board of Directors authorized 25,000 shares of common stock for issuance under the Non-Employee Director Stock Option Plan
(the "Director Plan"). In 1999, the Director Plan was amended to authorize a total of 150,000 shares for issuance. Under the Director Plan,
options to purchase common stock may be granted to non-employee directors of the Bank. Options are issued to non-employee directors at a
price equal to the fair market value of common stock at the date granted. The options granted are exercisable six months after grant. All options
expire ten years from the grant date.
In 1999, the Board of Directors authorized 25,000 shares of common stock for issuance under the 1999 Regional Director Stock Compensation
Plan. Under this plan, options to purchase common stock are granted to non-employee regional directors of Citizens & Commerce Bank, a
division of the Bank. Options are issued to non-employee regional directors at a price equal to the fair market value of common stock at the
date granted. One third of the options granted become exercisable commencing one year after the grant date with an additional one-third
becoming exercisable after each of the following two years. All options expire ten years from the grant date.
The Corporation applies APB Opinion 25 and related interpretations in accounting for the stock option plans. Accordingly, no compensation
cost has been recognized for its plans. Had compensation cost for the plans been determined based on the fair value at the grant dates of options
consistent with FASB Statement 123, the Corporation's net income, earnings per share-basic and earnings per share-assuming dilution would
have been
34
$7,745,779, $2.18 and $2.16, $5,627,587, $1.56 and $1.55, and, $6,625,664, $1.80 and $1.77, respectively for the years ended December 31,
2001, 2000 and 1999, respectively.
The fair value of each option granted during the years ended December 31, 2001, 2000, and 1999, was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions for 2001, 2000, and 1999, respectively: risk-free rate of 5.3, 5.2, and 6.7%
and volatility of 35, 30, and 25%. The dividend yield used in the pricing model was 3.5, 3.5, and 2.8% for 2001, 2000, and 1999, respectively.
The expected life used was eight years for 2001, 2000, and 1999.
Transactions under the various plans for the periods indicated were as follows:
2001 2000 1999
------------------ ------------------ ------------------
Exercise Exercise Exercise
Shares Price* Shares Price* Shares Price*
----------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 262,429 $ 14.93 208,444 $ 14.37 169,860 $ 12.36
Granted 71,650 18.55 69,800 15.80 68,350 17.64
Exercised (15,068) 9.71 (11,583) 9.62 (25,068) 9.44
Canceled (7,700) 17.12 (4,232) 16.22 (4,698) 15.27
----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 311,311 $ 15.97 262,429 $14.93 208,444 $ 14.37
==================================================================================================================================
*Weighted average
Options exercisable at year-end 139,051 122,730 108,761
Weighted-average fair value of options granted during the year $ 5.95 $ 4.57 $ 5.40
==================================================================================================================================
The following table summarizes information about stock options outstanding at December 31, 2001:
Options Outstanding Options Exercisable
--------------------------------------------- -------------------------------
Number Number
Outstanding Remaining Exercisable at
at December 31, Contractual Exercise December 31, Exercise
Range of Exercise Prices 2001 Life Price* 2001 Price*
----------------------------------------------------------------------------------------------------------------------------------
$8.87 to $12.50 72,378 4.48 $ 10.62 72,378 $10.62
$15.75 to $20.50 238,933 8.72 17.59 66,673 18.34
----------------------------------------------------------------------------------------------------------------------------------
$8.87 to $20.50 311,311 7.74 $ 15.97 139,051 $14.32
==================================================================================================================================
*Weighted average
NOTE 13: Regulatory Requirements and Restrictions
The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory--and possibly additional discretionary--actions by regulators that, if
undertaken, could have a direct material effect on the Corporation's and the Bank's financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve
quantitative measures of the Corporation's and the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Corporation's and the Bank's capital amounts and classification are subject to qualitative judgments by the regulators
about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum
amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier I capital (as defined) to average assets (as defined) less
35
goodwill. For both the Corporation and the Bank, Tier I capital consists of shareholders' equity excluding any net unrealized gain (loss) on
securities available for sale less goodwill, and total capital consists of Tier I capital and a portion of the allowance for loan losses. Risk-
weighted assets for the Corporation and the Bank were $325,379,000 and $317,199,000 at December 31, 2001 and $264,375,000 and
$256,559,000 at December 31, 2000. Management believes, as of December 31, 2001, that the Corporation and the Bank meet all capital
adequacy requirements to which they are subject.
As of December 31, 2001, the most recent notification from the Federal Deposit Insurance Corporation (FDIC) categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below. There are no conditions or events since
that notification that management believes have changed the Bank's category.
The Corporation's and the Bank's actual capital amounts and ratios are presented in the table.
Minimum To Be
Well Capitalized
Under Prompt
Minimum Capital Corrective Action
Actual Requirements Provisions
---------------- --------------- -----------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------------------------------------------------------------------
As of December 31, 2001:
Total Capital (to Risk-Weighted Assets)
Corporation $46,793 14.4% $26,030 8.0% N/A N/A
Bank 38,999 12.3 25,376 8.0 $31,720 10.0%
Tier I Capital (to Risk-Weighted Assets)
Corporation 43,110 13.3 13,015 4.0 N/A N/A
Bank 35,346 11.1 12,688 4.0 19,032 6.0
Tier I Capital (to Average Assets)
Corporation 43,110 10.8 16,027 4.0 N/A N/A
Bank 35,346 9.0 15,716 4.0 19,645 5.0
As of December 31, 2000:
Total Capital (to Risk-Weighted Assets)
Corporation $41,331 15.6% $21,174 8.0% N/A N/A
Bank 33,764 13.2 20,554 8.0 $25,693 10.0%
Tier I Capital (to Risk-Weighted Assets)
Corporation 38,023 14.4 10,587 4.0 N/A N/A
Bank 30,552 11.9 10,227 4.0 15,416 6.0
Tier I Capital (to Average Assets)
Corporation 38,023 10.9 13,874 4.0 N/A N/A
Bank 30,552 9.0 13,582 4.0 16,978 5.0
------------------------------------------------------------------------------------------------------------------------
Transfers of funds from the Bank to the Corporation in the form of loans, advances and cash dividends are restricted by federal and state
regulatory authorities. As of December 31, 2001, the aggregate amount of unrestricted funds which could be transferred from the Bank to the
Corporation, without prior regulatory approval, totaled $5,200,000 or 1.3% of the total consolidated net assets.
NOTE 14: Commitments and Financial Instruments with Off-Balance-Sheet Risk
The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to extend credit,
36
commitments to sell loans, and standby letters of credit. These instruments involve elements of credit and interest rate risk in excess of the
amount on the balance sheet. The contract amounts of these instruments reflect the extent of involvement the Bank has in particular classes of
financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend
credit and standby letters of credit written is represented by the contractual amount of these instruments.
The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
Collateral is obtained based on management's credit assessment of the customer.
Loan commitments are agreements to extend credit to a customer provided that there are no violations of the terms of the contract prior to
funding. Commitments have fixed expiration dates or other termination clauses and may require payment of a fee by the customer. Since many
of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The total amount of loan commitments was
$70,374,000 and $54,428,000 at December 31, 2001 and 2000, respectively.
Standby letters of credit are written conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.
The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The total contract
amount of standby letters of credit, whose contract amounts represent credit risk, was $3,943,000 and $5,016,000 at December 31, 2001 and
2000, respectively.
Commitments to sell loans are designed to eliminate the Mortgage Corporation's exposure to fluctuations in interest rates in connection with
loans held for sale. The Mortgage Corporation sells substantially all of the residential mortgage loans it originates to third-party investors, some
of whom require the repurchase of loans in the event of early default or faulty documentation. Mortgage loans and their related servicing rights
are sold under agreements that define certain eligibility criteria for the mortgage loan. Recourse periods vary from ninety days up to one year
and conditions for repurchase vary with the investor. Mortgages subject to recourse are collateralized by single-family residences, have loan-to-
value ratios of 80% or less, or have private mortgage insurance, or are insured or guaranteed by an agency of the U.S. Government.
At December 31, 2001, the Mortgage Corporation had locked-rate commitments to originate mortgage loans amounting to approximately
$25,000,000. The Mortgage Corporation has entered into mandatory commitments, on a best-effort basis, to sell loans of approximately
$94,263,000. Risks arise from the possible inability of counterparties to meet the terms of their contracts. The Mortgage Corporation does not
expect any counterparty to fail to meet its obligations.
The Mortgage Corporation is committed under noncancelable operating leases for certain office locations. Rent expense associated with these
operating leases was $580,000, $411,000, and $330,000, for the years ended December 31, 2001, 2000, and 1999, respectively.
Future minimum lease payments under these leases are as follows:
Year Ending December 31,
------------------------------------------------------------
2002 $418,077
2003 222,306
2004 20,202
------------------------------------------------------------
$660,585
============================================================
As of December 31, 2001, the Corporation had $6,836,331 in deposits in financial institutions in excess of amounts insured by the FDIC.
37
NOTE 15: Fair Market Value of Financial Instruments and Interest Rate Risk
The estimated fair value amounts have been determined by the Corporation using available market information and appropriate valuation
methodologies. Loan commitments are conditional and subject to market pricing and, therefore, do not reflect a gain or loss of market value.
The fair value of standby letters of credit is based on fees currently charged for similar agreements or on estimated costs to terminate them or
otherwise settle the obligations with the counterparties at the reporting date. However, considerable judgment is required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the
Corporation could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
Cash and short-term investments. The nature of these instruments and their relatively short maturities provide for the reporting of fair value
equal to the historical cost.
Securities. The fair value of investment securities is based on quoted market prices.
Loans. The estimated fair value of the loan portfolio is based on present values using applicable spreads to the U.S. treasury yield curve.
Loans held for sale. The fair value of loans held for sale is estimated based on commitments into which individual loans will be delivered.
Deposits and borrowings. The fair value of all demand deposit accounts is the amount payable at the report date. For all other deposits and
borrowings, the fair value is determined using the discounted cash flow method. The discount rate was equal to the rate currently offered on
similar products.
Accrued interest. The carrying amount of accrued interest approximates fair value.
December 31,
------------------------------------------
2001 2000
----------------- ------------------
Carrying Estimated Carrying Estimated
(Dollars in thousands) Amount Fair Value Amount Fair Value
-----------------------------------------------------------------------------------
Financial assets:
Cash and short-term investments $ 11,057 $ 11,057 $ 14,838 $ 14,838
Securities 53,952 53,952 66,594 67,336
Net loans 246,112 255,110 229,944 230,334
Loans held for sale, net 69,263 70,166 17,600 17,984
Accrued interest receivable 2,134 2,134 2,404 2,404
Financial liabilities:
Demand deposits 169,998 170,802 153,301 154,325
Time deposits 153,914 156,115 137,387 137,505
Borrowings 27,204 27,190 13,969 13,969
Accrued interest payable 811 811 993 993
Off-balance-sheet items:
Letters of credit -- 3,943 -- 5,016
Unused portions of lines of credit -- 70,374 -- 54,428
-----------------------------------------------------------------------------------
The Corporation assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result,
the fair values of the Corporation's financial instruments will change when interest rate levels change and that change may be either favorable
or unfavorable to the Corporation. Management attempts to match maturities of assets and liabilities to the extent believed necessary to manage
interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay
in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely
38
to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors
rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by
investing in securities with terms that mitigate the Corporation's overall interest rate risk.
NOTE 16: Business Segments
The Corporation operates in a decentralized fashion in two principal business activities, retail banking and mortgage banking. Revenues from
retail banking operations consist primarily of interest earned on loans and investment securities. Mortgage banking operating revenues consist
mainly of interest earned on mortgage loans held for sale, gains on sales of loans in the secondary mortgage market, and loan origination fee
income. The Corporation also has an investment company, an insurance company and a title company subsidiary which derive revenues from
brokerage, insurance and title insurance services. The results of these subsidiaries' are not significant to the Corporation as a whole and have
been included in "Other." The following table presents segment information for the years ended December 31, 2001, 2000, and 1999.
Year Ended December 31, 2001
-------------------------------------------
Retail Mortgage
(Dollars in thousands) Banking Banking Other Eliminations Consolidated
-------------------------------------------------------------------------------------------------
Revenues:
Interest income $ 26,848 $ 2,931 $ -- $ (1,545) $ 28,234
Gain on sale of loans -- 10,390 -- -- 10,390
Other 3,340 2,690 1,001 -- 7,031
-------------------------------------------------------------------------------------------------
Total operating income 30,188 16,011 1,001 (1,545) 45,655
-------------------------------------------------------------------------------------------------
Expenses:
Interest expense 11,984 1,545 -- (1,545) 11,984
Salaries and employee benefits 6,372 6,681 390 -- 13,443
Other 5,465 3,296 160 -- 8,921
-------------------------------------------------------------------------------------------------
Total operating expenses 23,821 11,522 550 (1,545) 34,348
-------------------------------------------------------------------------------------------------
Income before income taxes $ 6,367 $ 4,489 $ 451 $ -- $ 11,307
-------------------------------------------------------------------------------------------------
Total assets $389,426 $74,701 $ 52 $(60,103) $404,076
Capital expenditures $ 6,121 $ 304 $ -- $ -- $ 6,426
=================================================================================================
Year Ended December 31, 2000
------------------------------
Retail Mortgage
(Dollars in Thousands) Banking Banking Other Eliminations Consolidated
-------------------------------------------------------------------------------------------------
Revenues:
Interest income $ 25,974 $ 1,298 $ -- $ (851) $ 26,421
Gain on sale of loans -- 5,009 -- -- 5,009
Other 2,036 1,183 717 -- 3,936
-------------------------------------------------------------------------------------------------
Total operating income 28,010 7,490 717 (851) 35,366
-------------------------------------------------------------------------------------------------
Expenses:
Interest expense 11,309 851 -- (851) 11,309
Salaries and employee benefits 5,829 3,368 406 -- 9,603
Other 4,387 2,283 125 -- 6,795
-------------------------------------------------------------------------------------------------
Total operating expenses 21,525 6,502 531 (851) 27,707
-------------------------------------------------------------------------------------------------
Income before income taxes $ 6,485 $ 988 $ 186 $ -- $ 7,659
-------------------------------------------------------------------------------------------------
Total assets $339,877 $23,946 $ 9 $(16,360) $347,472
Capital expenditures $ 2,361 $ 145 $ -- $ -- $ 2,506
=================================================================================================
39
Year Ended December 31, 1999
----------------------------------------
Retail Mortgage
(Dollars in Thousands) Banking Banking Other Eliminations Consolidated
------------------------------------------------------------------------------------
Revenues:
Interest income $ 23,096 $ 1,916 $ -- $ (1,368) $ 23,644
Gain on sale of loans -- 6,692 -- -- 6,692
Other 2,134 1,589 860 -- 4,583
------------------------------------------------------------------------------------
Total operating income 25,230 10,197 860 (1,368) 34,919
------------------------------------------------------------------------------------
Expenses:
Interest expense 9,068 1,368 -- (1,368) 9,068
Salaries and employee benefits 5,127 3,889 350 -- 9,366
Other 4,586 2,599 149 -- 7,334
------------------------------------------------------------------------------------
Total operating expenses 18,781 7,856 499 (1,368) 25,768
------------------------------------------------------------------------------------
Income before income taxes $ 6,449 $ 2,341 $ 361 $ -- $ 9,151
------------------------------------------------------------------------------------
Total assets $327,877 $24,673 $ 36 (23,345) $329,241
Capital expenditures $ 2,709 $ 158 $ -- $ -- $ 2,867
====================================================================================
The retail banking segment provides the mortgage banking segment with the funds needed to originate mortgage loans through a warehouse
line of credit and charges the mortgage banking segment interest at the daily FHLB advance rate plus 50 basis points. These transactions are
eliminated to reach consolidated totals. Certain corporate overhead costs incurred by the retail banking segment are not allocated to the
mortgage banking and other segments.
NOTE 17: Parent Company Condensed Financial Information
Financial information for the parent company is as follows:
December 31,
---------------------
Balance Sheets 2001 2000
------------------------------------------------------------------------------
Assets
Cash $ 92,211 $ 62,073
Securities available for sale 5,468,496 5,034,587
Other assets 2,682,061 2,209,188
Investments in subsidiary 36,695,062 31,620,321
------------------------------------------------------------------------------
Total assets $44,937,830 $38,926,169
------------------------------------------------------------------------------
Liabilities and shareholders' equity
Other liabilities $ 194,807 $ 145,719
Shareholders' equity 44,743,023 38,780,450
------------------------------------------------------------------------------
Total liabilities and shareholders' equity $44,937,830 $38,926,169
==============================================================================
Year Ended December 31,
-------------------------
Statements of Income 2001 2000 1999
-------------------------------------------------------------------------------------------------------
Interest income on securities $ 347,529 $ 354,357 $ 339,886
Interest income on loans 162,796 184,000 102,627
Dividends received from bank subsidiary 3,408,649 2,940,632 7,859,692
Distributions in excess of equity in net income of subsidiary -- -- (1,479,099)
Equity in undistributed net income of subsidiary 4,219,625 2,459,459 --
Other income 5,124 94,630 151,153
Other expenses (155,006) (197,047) (218,029)
-------------------------------------------------------------------------------------------------------
Net income $7,988,717 $5,836,031 $ 6,756,230
=======================================================================================================
40
Year Ended December 31,
----------------------------------
Statements of Cash Flows 2001 2000 1999
----------------------------------------------------------------------------------------------------------
Operating activities:
Net income $7,988,717 $ 5,836,031 $ 6,756,230
Adjustments to reconcile net income to net cash provided by operating
activities:
Distributions in excess of equity in net income of subsidiary -- -- 1,479,099
Equity in undistributed earnings of subsidiary (4,219,625) (2,459,459) --
Increase in other assets (486,288) (237,372) (1,368,443)
Increase in other liabilities 49,088 80,369 219,672
----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,331,892 3,219,569 7,086,558
----------------------------------------------------------------------------------------------------------
Investing activities:
Proceeds from maturities and calls of securities 50,000 811,945 667,249
Purchase of securities (444,455) (1,107,101) (1,107,292)
----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (394,455) (295,156) (440,043)
----------------------------------------------------------------------------------------------------------
Financing activities:
Repurchase of common stock (1,014,320) (1,329,411) (4,909,024)
Dividends paid (2,056,093) (1,910,629) (1,797,092)
Proceeds from the issuance of stock 163,114 131,592 253,887
----------------------------------------------------------------------------------------------------------
Net cash used in financing activities (2,907,299) (3,108,448) (6,452,229)
----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 30,138 (184,035) 194,286
Cash at beginning of year 62,073 246,108 51,822
----------------------------------------------------------------------------------------------------------
Cash at end of year $ 92,211 $ 62,073 $ 246,108
----------------------------------------------------------------------------------------------------------
NOTE 18: Quarterly Condensed Statements of Income--Unaudited
2001 Quarter Ended
----------------------------------
Dollars in thousands (except per share) March 31 June 30 September 30 December 31
----------------------------------------------------------------------------------------------------------
Total interest income $ 6,915 $ 7,222 $ 7,095 $ 7,002
Net interest income after provision for loan losses 3,667 3,924 4,014 4,245
Other income 2,958 3,882 4,436 6,145
Other expenses 4,626 5,196 5,460 6,682
Income before income taxes 1,999 2,610 2,990 3,708
Net income 1,497 1,866 2,090 2,536
Earnings per common share--assuming dilution $ .42 $ .52 $ .58 $ .71
Dividends per common share .14 .14 .15 .15
-----------------------------------------------------------------------------------------------------------
2000 Quarter Ended
----------------------------------
Dollars in thousands (except per share) March 31 June 30 September 30 December 31
----------------------------------------------------------------------------------------------------------
Total interest income $ 6,147 $ 6,461 $ 6,830 $ 6,983
Net interest income after provision for loan losses 3,619 3,662 3,754 3,677
Other income 2,068 2,306 2,407 2,164
Other expenses 3,922 4,149 4,014 3,913
Income before income taxes 1,765 1,819 2,147 1,927
Net income 1,369 1,398 1,615 1,454
Earnings per common share--assuming dilution $ .37 $ .38 $ .45 $ .40
Dividends per common share .13 .13 .13 .14
----------------------------------------------------------------------------------------------------------
41
INDEPENDENT AUDITOR'S REPORT
[LOGO YHB]
The Board of Directors and Shareholders
C&F Financial Corporation
We have audited the accompanying consolidated balance sheets of C&F Financial Corporation and Subsidiary as of December 31, 2001 and
2000, and the related consolidated statements of income, shareholders' equity, and cash flows for the years ended December 31, 2001, 2000 and
1999. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of C&F
Financial Corporation and Subsidiary as of December 31, 2001 and 2000, and the results of their operations and their cash flows for the years
ended December 31, 2001, 2000 and 1999, in conformity with accounting principles generally accepted in the United States of America.
Yount, Hyde & Barbour, P.C.
January 15, 2002
Winchester, Virginia
42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
None.
FINANCIAL DISCLOSURE
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 3 through 4 of the 2002 Proxy
Statement, which is attached hereto as Exhibit 99, under the caption, "Election of Directors," is incorporated herein by reference. The
information required by Section 16(a) reporting requirements with respect to Directors and Executive Officers is contained on page 13 of the
2002 Proxy Statement, which is attached hereto as Exhibit 99, under the caption, "Section 16(a) Beneficial Ownership Reporting Compliance,"
is incorporated herein by reference.
The information in the following table pertains to the executive officers of the Corporation:
Executive Officers of C&F Financial Corporation
Name (Age) Business Experience Number of Shares Beneficially
Present Position During Past Five Years Owned as of February 26, 2002
---------------------- ------------------------------------- -------------------------------
Larry G. Dillon (49) President of the Bank since 1989 46,202 (1)
Chairman, President and
Chief Executive Officer
Gari B. Sullivan (64) Senior Vice President of the Bank since 1990 3,237 (1)
Secretary
Thomas F. Cherry (33) Promoted to Senior Vice President of the Bank in 5,700 (1)
Chief Financial Officer December 1998; Vice President of the Bank from
December 1996 to December 1998; Manager with
Price Waterhouse, LLP in Norfolk, prior to
December 1996
(1) Includes exercisable options of 17,700, 1,500, and 5,500 held by Messrs. Dillon, Sullivan, and Cherry, respectively.
ITEM 11. EXECUTIVE COMPENSATION
The information contained on pages 5 through 7 of the 2002 Proxy Statement, which is attached hereto as Exhibit 99, under the caption,
"Executive Compensation," is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained on page 2 of the 2002 Proxy Statement, which is attached hereto as Exhibit 99, under the caption, "Security
Ownership of Certain Beneficial Owners and Management," is incorporated herein by reference.
43
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained on page 5 of the 2002 Proxy Statement, which is attached hereto as Exhibit 99, under the caption, "Interest of
Management In Certain Transactions," is incorporated herein by reference.
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
10.1 Employment agreement dated December 16, 1997 between
C&F Financial Corporation and Larry Dillon filed as
Exhibit No. 10 to Form 10K filed March 23, 1998, of
C&F Financial Corporation is incorporated herein by
reference.
10.2 Employment agreement dated August 1, 1999 between C&F
Financial Corporation and Tom Cherry filed as Exhibit
No. 10 to Form 10K filed March 28, 2000, of C&F
Financial Corporation is incorporated herein by
reference.
10.3 C&F Executive Deferred Compensation Plan
10.4 C&F Financial Corporation 1994 Executive Stock Option
Plan filed as Exhibit 4.3 to Form S-8 filed May 1,
2000 is incorporated herein by reference.
10.5 C&F Financial Corporation 1998 Non-Employee Director
Stock Compensation Plan filed as Exhibit 4.3 to Form
S-8 filed September 18, 1998 is incorporated herein by
reference.
Exhibit No. 13: C&F Financial Corporation 2001 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.
Exhibit No. 99: Additional Exhibits
99.1 C&F Financial Corporation 2002 Annual Meeting Proxy
Statement
14 (b) Reports on Form 8-K filed in the fourth quarter of 2001:
None.
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 14a-3(b).
44
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
--------------------------------------- ------------------------------
Larry G. Dillon Thomas F. Cherry
Chairman, President and Chief Executive Officer Senior Vice President and
Chief Financial Officer
Date: March 15, 2002 Date: March 15, 2002
--------------------------------------- ------------------------------
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/ J. P. Causey Jr. Date: March 15, 2002
--------------------------------------- ------------------------------
J. P. Causey Jr., Director
/s/Barry R. Chernack Date: March 15, 2002
--------------------------------------- ------------------------------
Barry R. Chernack, Director
/s/ Larry G. Dillon Date: March 15, 2002
--------------------------------------- ------------------------------
Larry G. Dillon, Director
/s/ James H. Hudson III Date: March 15, 2002
--------------------------------------- ------------------------------
James H. Hudson III, Director
/s/ Joshua H. Lawson Date: March 15, 2002
--------------------------------------- ------------------------------
Joshua H. Lawson, Director
/s/ William E. O'Connell Jr. Date: March 15, 2002
--------------------------------------- ------------------------------
William E. O'Connell Jr., Director
/s/ Paul C. Robinson Date: March 15, 2002
--------------------------------------- ------------------------------
Paul C. Robinson, Director
45
VIRGINIA BANKERS ASSOCIATION
MODEL NON-QUALIFIED DEFERRED COMPENSATION PLAN
FOR EXECUTIVES
(July, 1996)
ADOPTION AGREEMENT
If the Employer completing this document has any questions about the adoption of the Plan, the provisions of the Plan, its representative should
contact Bette J. Albert, C.L.U. at the Virginia Bankers Association Benefits Corporation, 700 East Main Street, Suite 1411, Post Office Box
462, Richmond, Virginia 23219, telephone number (804) 643-7469 during business hours.
Each Employer named below hereby adopts the Plan through this Adoption Agreement (the "Adoption Agreement"), to be effective as of the
date(s) specified below, and elects the following specifications and provides the following information relating thereto:
In completing this Adoption Agreement, if additional space is required insert additional sheets.
Adoption Agreement Contents
Page
----
Option 1 Employer(s) Adopting Plan Named in Paragraph 1.12 of the Plan ......... 1
Option 2 General Plan Information .............................................. 2
Option 3 Status of Plan and Effective Date(s) .................................. 2
Option 4 Definitions ........................................................... 3
Option 5 Employer Contributions and Allocations ................................ 5
Option 6 Vesting ............................................................... 8
Option 7 Retirement Dates ...................................................... 9
Option 8 Time and Form of Benefit Payments ..................................... 9
Option 9 Participant Deemed Investment Direction ............................... 14
Option 10 Change in Control Definition .......................................... 14
1. EMPLOYER(S) ADOPTING PLAN NAMED IN PARAGRAPH 1.12 OF THE PLAN.
================================================================================
(a) Name of Employer: (b) Employer's telephone
C& F Financial Corporation Number:
(804) 843-2360
--------------------------------------------------------------------------------
(c) Address of Employer: (d) Employer's EIN:
Post Ofice Box 391 54-1680165
West Point, VA 23181 -------------------------------
(e) Employer's Tax Year End:
12/31
================================================================================
(f) Name, Address and Identifying Information of Other Participating Employers Adopting the Plan:
Citizens and Farmers Bank C&F Mortgage Corporation
Eighth and Main Streets 300 Arboretum Place -Suite 245
West Point, Virginia 23181 Richmond, Virginia 23236
Telephone number (804) 843-2360 Telephone (804) 330-8300
EIN 54-0169510 EIN 54-1773964
2. GENERAL PLAN INFORMATION.
(a) Name of Plan: VBA Executive's Deferred Compensation Plan for C&F Financial Corporation
(b) Name, Address and EIN of Plan Administrator(s): [If other than Plan Sponsor, appointment must be by resolution]:
3. STATUS OF PLAN AND EFFECTIVE DATE(S).
(a) Effective Date of Plan: The Effective Date of the Plan is January 1, 1998.
(b) Plan Status. The adoption of the Plan through this Adoption Agreement is:
[_] (1) Initial Establishment. The initial adoption and establishment
---------------------
of the Plan.
[X] (2) Restated Plan. An amendment and restatement of the Plan (a
-------------
Restated Plan).
(A) Effective Date of this Restatement. The Effective Date of
----------------------------------
this Restatement of the Plan is January 1, 200.
(B) Prior Plan. The Plan was last maintained under document
-----------
dated, December 31, 1997 and was known as the for C&F
Financial Corporation.
(C) Transitional or Special Provisions: [Enter any
----------------------------------
transitional or special provisions relating to any
Rollover Account and the Plan as restated]
(c) Adoption of Plan by Additional Employers after Effective Date of Plan. The Effective Date(s) of the Plan with respect to Citizens and
Farmers Bank is January 1, 1998 and C&F Mortgage Corporation is January 1, 2000.
2
4. DEFINITIONS.
--------------------------------------------------------------------------------
(a) Compensation Compensation is used throughout the basic
Paragraph 1.8 plan document for different purposes. The
following specific rules apply.
(1) General Definition. The Compensation
------------------
definition in paragraph 1.8 of the basic
plan document is modified as follows:
(A) Salary. Salary is more specifically
------
defined to mean:
[Consider whether to fix the date
for determining Salary. Consider
whether to revise to exclude
reductions for 401(k) and cafeteria
plan contributions. Other revisions
may be desired.]
(B) Bonus. Bonus is more specifically
-----
defined to mean:
[Consider naming specific bonus or
incentive programs. Indicate
excluded programs specifically.]
(2) Specific Definitions. When used with
--------------------
respect to each type of contribution
under the Plan, Compensation shall
include:
(A) Employee Deferral Contributions.
-------------------------------
[_] (i) Salary.
[_] (ii) Bonuses.
[X] (iii) Salary and Bonuses.
(B) Employer Non-Elective Contributions.
-----------------------------------
- See Attachment.
[_] (i) Salary.
[_] (ii) Bonuses.
[X] (iii) Salary and Bonuses - for
purposes of the "SERP" Employer
Non-Elective Contributions (see
Attachment).
[X] (iv) Other: for purposes of "Excess
Profit Sharing" Employer
Non-Elective Contributions (see
Attachment), "Compensation" in
excess of Compensation Limit. For
purposes hereof, the terms
"Compensation" and "Compensation
Limit" has the same meaning assigned
to them in the Virginia Bankers
Association Defined Contribution
Plan for Citizens and Farmers Bank
as amended from time to time (or any
successor thereto) (the "401(k)
Plan").
3
(C) Employer Matching Contributions.
-------------------------------
[_] (i) Salary.
[_] (ii) Bonuses.
[_] (iii) Salary and Bonuses.
[X] (iv) Other: "Compensation" in excess
of "Compensation Limit" (as such terms
are defined in the "401(k) Plan").
--------------------------------------------------------------------------------
(b) Eligible Employee Eligible Employee shall mean only the
Paragraph 1.10 following:
[x] (1) Determination by Board - for any
---------------------------------
and all Employer Contributions.
------------------------------
Any individual who is designated
as an Eligible Employee by
resolution of the [] Plan
Sponsor's [x] Employer's Board
of Directors (or committee
thereof). A copy of the
resolution shall be attached to
and incorporated by reference
into the Plan. See Attachment.
[x] (2) Determination by CEO - for
--------------------------
Employee Deferral Contributions.
-------------------------------
Any individual who is designated
as an Eligible Employee by
resolution of the [] Plan
Sponsor's [x] Employer's Chief
Executive Officer. A copy of
the Chief Executive Officer's
designation shall be attached to
and incorporated by reference
into the Plan.
[] (3) Determined by Classification
----------------------------
or Grade - for all Contributions
--------------------------------
other than SERP Non-Elective
----------------------------
Contributions. Any individual who
------------
is classified under the Employer's
personnel practices and policies
as employed in the following
grades or classifications:
[List executive classification to
be included in plan coverage].
[] (4) Determined by Position or
----------------------------
Title. Any individual who is
-----
employed in the following
positions with the Employer:
[List the executive positions to be included in plan coverage.]
(c)) Plan Year In the case of Restated Plan which prior to
Paragraph 1.20 the Effective Date of this Restatement was
maintained on the basis of a Plan Year
beginning on a date other than January 1,
the Plan Year shall begin on ,19 and ending on , 19 with the short Plan Year beginning on , 19 and ending on December 31, 19 . Thereafter, the
Plan Year shall be the 12 month period beginning each January 1.
4
--------------------------------------------------------------------------------
(d) Valuation Date The following date selected by the
Paragraph 1.23 Employer:
[X] (1) Quarterly. The last day of each
---------
calendar quarter.
[ ] (2) Semi-Annually. The last day of
-------------
June and the last day of December
of each Plan Year.
[ ] (3) Annually. The last day of each
--------
Plan Year.
--------------------------------------------------------------------------------
(e) Effective Date The effective date of coverage for an
of Coverage Eligible Employee shall be [Check one]:
Subparagraph 2.1
[X] (1) Quarterly. The first day of
---------
calendar quarter following
the date the individual became an
Eligible Employee.
[ ] (2) Semi-Annually. The first day of
-------------
the Plan Year or the first day of
the seventh month of the Plan Year
next following the date the
individual became an Eligible
Employee.
[ ] (3) Annually. The first day of the
---------
Plan Year following the date the
individual became an Eligible
Employee.
5. EMPLOYER CONTRIBUTIONS AND ALLOCATIONS
--------------------------------------------------------------------------------
(a) Employer Contributions The following contributions by the Employer
Paragraph 3.4 are elected:
[ ] (1) None. Employer contributions are
----
not permitted.
[X] (2) Employer Non-Elective
Contribution.
-------------
(A) Amount. Each Employer shall
------
make an Employer Non-
Elective Contribution for
each Plan Year in such
amount, if any, which the
Employer shall determine.
[X] (i) Flexible Formula - Such
----------------
amount, if any, which
the Board of Directors
of the Employer shall
determine by resolution.
- See Attachment.
[ ] (ii) Compensation Formula - %
--------------------
[Insert percentage] of
the Compensation of all
Participants for such
Plan Year eligible to
receive an allocation of
the Employer Non-
Elective Contribution
for such Plan Year, plus
any additional amount
that the Board of
Directors of the
Employer shall determine
by resolution.
[ ] (iii) Fixed Amount - $
------------
[Insert amount], plus
any additional amount
that the Board of
Directors of the
Employer shall determine
by resolution.
5
(B) Participants Entitled to Share of Employer
------------------------------------------
Non-Elective Contribution. The Employer
-------------------------
Non-Elective Contribution shall be allocated
in proportion to Compensation as defined in
Option 4(a)(2)(B) of the Adoption Agreement
for the Plan Year to the Employer Deferral
Account of the Participants who [Select
applicable provisions which shall apply
conjunctively unless otherwise noted]: - See
Attachment.
[ ] (i) Are employed as Eligible Employees for
at least [Insert number of months]
full calendar months in for such Plan
Year.
[ ] (ii) Are Eligible Employees at any time
during such Plan Year.
[ ] (iii) Are Eligible Employees on the last day
of such Plan Year. - For Excess Profit
Sharing Non-Elective Contributions.
[ ] (iv) If they died while Eligible Employees
or retired on their Disability, Early,
Normal or Delayed Retirement Date
while Eligible Employees during such
Plan Year [Check one]: - For Excess
Profit Sharing Non-Elective
Contributions.
[ ] (a) But only if they are employed as
an Eligible Employee for at least
[Insert number of months] full
calendar months in such Plan Year.
[ ] (b) Regardless of the number of months
employed during such Plan Year.
(C) Time for Making and Allocating Employer
---------------------------------------
Non-Elective Contribution. The Employer
-------------------------
Non-Elective Contribution [Check one]:
[ ] (i) Quarterly - For a calendar quarter of
---------
a Plan Year shall be made to the Plan
within a reasonable time after the end
of such quarter and shall be allocated
to Participant's accounts as of the
last day of such quarter.
[ ] (ii) Semi-Annually - For a six month
-------------
period in the Plan Year shall be made
to the Plan within a reasonable time
after the end of June and December of
each Plan Year and shall be allocated
to Participants' accounts as of the
last day of such month.
[X] (iii) Annually - For a Plan Year shall be made to the Plan at such time(s) as the Employer shall determine and shall be allocated to
Participants' accounts as of the last day of such Plan Year.
6
[X] (3) Employer Matching Contributions.
-------------------------------
(A) Amount. Each Employer shall make an Employer
------
Matching Contribution for each Plan Year in
an amount, subject to the limitations
provided in the Plan, equal to the following
percentage(s) of each Participant's Deferral
Contribution of Compensation as defined in
Option 4(a)(2)(C) of the Adoption Agreement
for such Plan Year [Check one]:
[X] (i) Straight Percentage - 100% [Insert
-------------------
percentage] of his Compensation as
defined in Option 4(a)(2)(C) of the
Adoption Agreement contributed to the
Plan (up to a maximum of 5% of such
Compensation).
[ ] (ii) Contribution Weighted Percentages - %
---------------------------------
[Insert percentage] of the first %
[Insert percentage] of his
Compensation as defined in Option
4(a)(2)(C) of the Adoption Agreement
contributed to the Plan and % of his
Compensation as defined in Option
4(a)(2)(C) of the Adoption Agreement
contributed to the Plan (up to a
maximum of % of such Compensation).
(B) Participants Entitled to Share of Employer
------------------------------------------
Matching Contribution. The Employer Matching
---------------------
Contribution shall be allocated as described
in Option 5(a)(3)(A) of the Adoption
Agreement for the Plan Year to the Employer
Deferral Account of the Participants who
[Select applicable provisions which shall
apply conjunctively unless otherwise noted]:
[ ] (i) Are employed as an Eligible Employee
for at least [Insert number of months]
full calendar months in for such Plan
Year.
[ ] (ii) Are Eligible Employees at any time
during such Plan Year.
[X] (iii) Are Eligible Employees on the last day
of such Plan Year.
[X] (iv) If they died while an Eligible
Employee or retired on his Disability,
Early, Normal or Delayed Retirement
Date while an Eligible Employee during
such Plan Year [Check one]:
[ ] (a) But only if they are employed as
an Eligible Employee for at
least [Insert number of months]
full calendar months in such Plan
Year.
7
[X] (b) Regardless of the number of months
employed during such Plan Year.
(C) Time for Making and Allocating Employer
---------------------------------------
Matching Contribution. The Employer Matching
---------------------
Contribution [Check one]:
[ ] (i) Quarterly - For a calendar quarter of
---------
a Plan Year shall be made to the Plan
within a reasonable time after the end
of such quarter and shall be allocated
to Participants' accounts as of the
last day of such quarter.
[ ] (ii) Semi-Annually - For a six month
-------------
period in the Plan Year shall be made
to the Plan within a reasonable time
after the end of June and December of
each Plan Year and shall be allocated
to Participants' accounts as of the
last day of such month.
[X] (iii) Annually - For a Plan Year shall be made to the Plan at such time(s) as the Employer shall determine and shall be allocated to
Participants' accounts as of the last day of such Plan Year.
6. VESTING
--------------------------------------------------------------------------------
(a) Vesting Schedule The following vesting schedule shall apply to
Subparagraph 6.3(a) the Employer Deferral Employer Deferral Account
of all Participants [Check one, and complete
where applicable]:
[X] (1) Apply Rules Described in Qualified Plan.
---------------------------------------
A Participant is vested in his Employer
Deferral Account under the Plan in the
same manner and applying the same rules
applicable under the following qualified
retirement plan maintained by the
Employer: For Employer Deferral Account
Matching subaccount and Employer
Deferral Account Profit Sharing
subaccount.
[ ] (2) Always 100% Vested. A Participant shall
------------------
always have a non-forfeitable right to
one hundred percent (100%) of his
Employer Deferral Account.
[X] (3) Other Applicable Rules. A Participant
----------------------
shall be vested in his Employer Deferral
Account in accordance with the following
rules:
See Attachment for vesting in Employer Deferral Account SERP subaccount.
[Describe vesting provisions, including automatic vesting provisions, applicable schedule and rules for counting service].
8
7. RETIREMENT DATES
--------------------------------------------------------------------------------
(a) Normal Retirement Date A Participant's Normal Retirement Date shall
Paragraph 6.1 be the day the Participant reaches age.
--------------------------------------------------------------------------------
(b) Early Retirement Date [Select and complete applicable provision(s)]
Paragraph 6.3
[X] (1) None.
[ ] (2) Same as under the following qualified
retirement plan maintained by the
Employer.
[ ] (3) No age requirement.
[ ] (4) Age requirement of years.
[ ] (5) No service requirement.
[ ] (6) Service requirement of years of
continuous full-time service with the
employer.
--------------------------------------------------------------------------------
(c) Disability Retirement Date [Select and complete applicable provision(s)]
Paragraph 6.4
[X] (1) None.
[ ] (2) Same as under the following qualified
retirement plan maintained by the
Employer.
[ ] (3) No age requirement.
[ ] (4) Age requirement of years.
[ ] (5) No service requirement.
[ ] (6) Service requirement of years of
continuous full-time service with
the Employer.
8. TIME AND FORM OF BENEFIT PAYMENTS.
(a) Benefit Commencement Date The term Benefit Commencement Date shall mean the first day of Defined Paragraphs 1.5, calendar quarter
coinciding with or next following:
3.3(a) and 7.1
[ ] (1) Retirement Date. The Participant's Retirement Date under the Plan as of which he retires.
[ ] (2) Termination of Employment. The Participant's termination of employment with the Employer for whatever reason.
9
[X] (3) Selected By Participant. The date selected by the Participant in accordance with the following:
(A) Participant's Options. The
---------------------
Participant may elect that his
Benefit Commencement Date be based
on [Select options to be available
to Participants]:
[ ] (i) His Retirement Date under the
Plan as of which he retires.
[X] (ii) His termination of employment
with the Employer.
[ ] (iii) A date certain stated clearly
in his election form which
shall be without regard to
when his employment with the
Employer ends.
[X] (iv) The later of a date certain or
his Retirement Date as of
which he retires.
[ ] (v) Describe other options to be
available:
______________________________
______________________________
(B) Timing of Participant Election. The
------------------------------
Participant shall elect his Benefit
Commencement Date at the following
time:
[ ] (i) At Time Deferral Election is
----------------------------
Made. The Participant's
----
election of the Benefit
Commencement Date shall be
made at the time his first
Deferred Contribution Election
is filed under the Plan.
[X] (ii) In Plan Year Prior to Date
--------------------------
Elected. The Participant's
-------
election of the Benefit
Commencement Date shall be
made no later than the earlier
of (a) the end of the Plan
Year prior to the Benefit
Commencement Date selected and
(b) at least 90 days before
the selected date.
10
--------------------------------------------------------------------------------
(b) Form of Payment to The form of benefit payments available to the
Participant 7.2(a) Participant shall be determined in accordance
with the following rules:
[_] (1) Selected By Employer. The Employer
--------------------
selects the following form of payment:
[_] (A) Lump Sum Payment. Deferral
----------------
Benefits will be paid in the
form of a lump sum payment.
[_] (B) Periodic Installments. Deferral
---------------------
Benefits will be paid in the form
of periodic installment payments
made:
(i) Frequency:
---------
[_] (a) Monthly.
[_] (b) Quarterly.
[_] (c) Semi-Annually.
[_] (d) Annually.
(ii) Duration. Over the following
--------
period:
[_] (a) Five (5) years.
[_] (b) Ten (10) years.
[_] (c) Fifteen (15) years.
[_] (d) Twenty (20) years.
[X] (2) Selected By Participant. The form of
-----------------------
payment shall be selected by the
Participant in accordance with the
following:
(A) Participant's Options. The
---------------------
Participant may elect from among
the following forms of payment
[Select options to be available to
Participants]:
[X] (i) Lump Sum Payment. Deferral
----------------
Benefits may be paid only in
the form of a lump sum
payment.
[X] (ii) Periodic Installments.
---------------------
Deferral Benefits may be paid
in the form of periodic
installment payments made:
(a) Frequency:
---------
[X] (I) Monthly.
11
[X] (II) Quarterly.
[X] (III) Semi-Annually.
[X] (IV) Annually.
(b) Duration. Over the
--------
following period:
[X] (I) Five (5) years.
[X] (II) Ten (10) years.
[X] (III) Fifteen (15) years.
[X] (IV) Twenty (20) years.
(B) Timing of Participant Election.
------------------------------
The Participant shall elect his
form of payment at the
following time:
[_] (i) At Time Deferral Election
-------------------------
is Made. The Participant's
-------
election of the form of
payment shall be made at
the time his first
Deferred Contribution
Election is filed under
the Plan.
[X] (ii) In Plan Year Prior to Date
--------------------------
Elected. The Participant's
-------
election of the form of
payment shall be made no
later than the earlier of
(a) the end of the Plan
Year prior to the Benefit
Commencement Date selected
and (b) at least 90 days
before the selected date.
-------------------------------------------------------------------------------
(c) Form of Payment to The form of benefit payments available to
Beneficiary the Beneficiary shall be determined in
Paragraph 7.2(b) accordance with the following rules:
[X] (1) Selected By Employer. The Employer
--------------------
selects the following form of
payment:
[_] (A) Lump Sum Payment. Deferral
----------------
Benefits will be paid in the
form of a lump sum payment.
[_] (B) Periodic Installments.
---------------------
Deferral Benefits will be paid
in the form of periodic
installment payments made:
(i) Frequency.
---------
[_] (a) Monthly.
[_] (b) Quarterly.
[_] (c) Semi-Annually.
[_] (d) Annually.
12
(ii) Duration. Over the following period:
--------
[ ] (a) Five (5) years.
[ ] (b) Ten (10) years.
[ ] (c) Fifteen (15) years.
[ ] (d) Twenty (20) years.
[X] (2) Selected By Participant. The form of
-----------------------
payment shall be selected by the Participant
in accordance with the following:
(A) Participant's Options. The Participant
---------------------
may elect from among the following forms
of payment [Select options to be
available to Participants]:
[X] (i) Lump Sum Payment. Deferral Benefits
----------------
may be paid only in the form of a
lump sum payment.
[X] (ii) Periodic Installments. Deferral
---------------------
Benefits may be paid in the form of
periodic installment payments made:
(a) Frequency:
---------
[X] (I) Monthly.
[X] (II) Quarterly.
[X] (III) Semi-Annually.
[X] (IV) Annually.
(b) Duration. Over the following
--------
period:
[X] (I) Five (5) years.
[X] (II) Ten (10) years.
[X] (III) Fifteen (15) years.
[X] (IV) Twenty (20) years.
(B) Timing of Participant Election. The
------------------------------
Participant shall elect the Beneficiary's
form of payment at the time his first
Deferred Contribution Election is filed
under the Plan or at any time prior to
his death.
13
9. PARTICIPANT DEEMED INVESTMENT DIRECTION.
Paragraph 3.6
(a) Availability Generally A Participant [Check one]:
[ ](1) Not Permitted. May not make deemed investment directions.
[ ](2) Permitted. May make deemed investment directions for the following accounts (the "directable accounts") [Check one or more]:
[X](A) Employee Deferral Account.
[X](B) Employer Deferral Account. - For Employer Deferral Account Matching subaccount and Employer Deferral Account Profit Sharing
subaccount at all times; and for Employer Deferral Account SERP subaccount after vesting and termination of employment.
(b) Frequency and Effective Participants may make their deemed
Date of Investment investment directions as of [Check one
Directions if Option 9(a)(2) is selected]:
[X](1) Quarterly. Quarterly effective as
---------
of the first date of each quarter
of the Plan Year,
[ ](2) Semi-Annually. Semi-annually
-------------
effective as of the first day of
each Plan Year,
[ ](3) Annually. Annually effective as
--------
of the first day of each Plan
Year,
and (if any of the above options are
selected) at such other date(s) as the
Administrator may from time to time
authorize.
================================================================================
10. CHANGE IN CONTROL DEFINITION
Subparagraph 4.3(b)
--------------------------------------------------------------------------------
Change in Control For purposes of subparagraph 4.3(b), the
term Change in Control shall have the
following meaning:
[X](1) The same meaning as that or a
similar term has in the following
plan or program adopted by the
Employer to protect executives in
the event of a major corporate
transaction:
As provided in the Plan Sponsor's
1994 Incentive Stock Plan, as
amended from time to time.
[ ](2) The meaning set forth in clause
(ii) of subparagraph 4.3(b). -
14
[ ] (3) The meaning set forth in clause (ii) of subparagraph 4.3(b) with the following modifications:___________________________
[ ] (4) The meaning set forth on the attached Appendix to this Adoption Agreement which shall be incorporated by reference and made a part of
the terms of the Plan.
IN WITNESS WHEREOF, each Employer, by its duly authorized representatives, has executed this instrument this 28th day of February,
2001.
[Enter Name of Employer]
C&F Financial Corporation
By /s/ Tom Cherry
-----------------------------------------
Its SVP & CFO
----------------------------------------
[SEAL]
ATTEST:
/s/ Larry G. Dillon
-------------------------------
Its President & CEO
---------------------------
[Enter Name of Employer]
Citizens and Farmers Bank
By /s/ Tom Cherry
-----------------------------------------
Its SVP & CFO
----------------------------------------
[SEAL]
ATTEST:
/s/ Larry G. Dillon
-------------------------------
Its President & CEO
---------------------------
[Enter Name of Employer]
C&F Mortgage Corporation
By /s/ Larry G Dillon
-----------------------------------------
Its Chairman
----------------------------------------
[SEAL]
ATTEST:
/s/ Tom Cherry
-------------------------------
Its SVP & CFO
---------------------------
15
ATTACHMENT TO
THE ADOPTION AGREEMENT FOR
VBA EXECUTIVES DEFERRED COMPENSATION PLAN
FOR C&F FINANCIAL CORPORATION
(As Restated Effective January 1, 2001)
Pursuant to authorization of the Board of Directors of C&F Financial Corporation, the following additions are made to the Adoption
Agreement for the VBA Executive's Deferred Compensation Plan for C&F Financial Corporation, as restated effective January 1, 2001 in the
form of the Virginia Bankers Association Model Non-Qualified Deferred Compensation Plan for Executives and as amended from time to time
(the "Plan"):
1. Types of Employer Contributions. The Employer may make Employer Matching Contributions and two types of Employer Non-Elective
Contributions -
(1) "Excess Profit Sharing" Employer Non-Elective Contributions and (2) "SERP" Employer Non-Elective Contributions.
2. Designation as a Participant Eligible for Employer Contributions.
Eligibility of an Employee for participation in any or all of the Employer Contributions requires designation by the Board (or a committee
thereof).
(a) Participants who may be entitled to an Employer Matching Contribution are sometimes referred to as Matching Participants for this
purpose.
(b) Participants who may be entitled to a "Excess Profit Sharing" Employer Non-Elective Contribution are sometimes referred to as Excess
Profit Sharing Participants for this purpose.
(c) Participants who may be entitled to a SERP Employer Non-Elective Contribution are sometimes referred to as SERP Participants for this
purpose.
3. Excess Profit Sharing Employer Non-Elective Contributions. Effective as of and from January 1, 2000, unless otherwise provided by the
Board, an "Excess Profit Sharing" Employer Non-Elective Contribution shall be made on behalf of a Participant who has Compensation (as
defined in the 401(k) Plan) in excess of the Compensation Limit and who meets the accrual requirements to receive an allocation of the profit
sharing contribution under the 401(k) Plan in an amount equal to the product obtained by multiplying (a) the 401(k) Plan profit sharing
contribution rate (i.e., the actual profit sharing contribution to the 401(k) Plan expressed as a percentage of the covered compensation of
401(k) Plan participants entitled to a share of the profit sharing contribution) by (b) the SERP Participant's Compensation in excess of the
Compensation Limit
4. SERP Employer Non-Elective Contributions. Effective as of and from January 1, 2000, unless otherwise provided by the Board, a "SERP"
Employer Non-Elective Contribution shall be made on behalf of a Participant who is a SERP Participant in such amount, if any, as determined
by the Board.
5. Employer Accounts. The Employer Deferral Account shall be subdivided into three subaccounts:
(a) The Employer Deferral Account Matching subaccount to which shall be allocated Employer Matching Contributions.
(b) The Employer Deferral Account Profit Sharing subaccount to which shall be allocated Excess Profit Sharing Employer Non-Elective
Contributions.
16
(c) The Employer Deferral Account SERP subaccount to which shall be allocated SERP Employer Non-Elective Contributions.
6. Vesting in Employer Deferral Account SERP subaccount. A Participant's Employer Deferral Account SERP subaccount shall be fully vested
upon the first to occur of the following while he is an Employee:
(a) His death.
(b) His total disability (based on the standard applicable under the Employer's long term disability program or, if none or if he is not a
participant in that program, based on his entitlement to Social Security disability).
(c) His retirement at or after age 65.
(d) His early retirement with consent of the Board expressly providing for such vesting.
(e) A Change in Control.
IN WITNESS WHEREOF, C&F Financial Corporation, as the Plan Sponsor, has caused its name to be signed to this Attachment by its duly
authorized officer as of the date noted below.
Dated: 2-28-01 C&F Financial Corporation, Plan Sponsor
By: /s/ Tom Cherry
------------------------------------
Its SVP & CFO
----------------------------------
By execution hereof by the duly authorized Representative, the Virginia Bankers Association hereby accept the above Attachment.
Dated: ____________________ _____________________________________ Trustee's Representative
17
[PHOTO]
[C&F LOGO]
C&F FINANCIAL CORPORATION
2001 ANNUAL REPORT
[LOGO GRAPHIC]
OUR MISSION
It is the mission of the directors, officers, and staff to maximize the long-term wealth of the shareholders of C&F Financial Corporation
through Citizens and Farmers Bank and its other subsidiaries.
We believe we provide a superior value when we balance long-term and short-term objectives to achieve both a competitive return on
investment and a consistent increase in the market value of the Corporation's stock.
This must be achieved while maintaining adequate liquidity and safety standards for the protection of all of the Corporation's interested parties,
especially its depositors and shareholders.
This mission will be accomplished by providing our customers with distinctive service and quality financial products which are responsive to
their needs, fairly priced, and delivered promptly and efficiently with the highest degree of accuracy and professionalism.
OUR VALUES
We believe that excellence is the standard for all we do, achieved by encouraging and nourishing: respect for others; honest, open
communication; individual development and satisfaction; a sense of ownership and responsibility for the Corporation's success; participation,
cooperation, and teamwork; creativity, innovation, and initiative; prudent risk-taking; and recognition and rewards for achievement.
We believe that we must conduct ourselves morally and ethically at all times and in all relationships.
We believe that we have an obligation to the well-being of all the communities we serve.
We believe that our officers and staff are our most important assets, making the critical difference in how the Corporation performs and,
through their work and effort, separate us from all competitors.
2001 FINANCIAL HIGHLIGHTS
C&F Financial Corporation (the "Corporation") is a one-bank holding company with administrative offices in West Point, Virginia. Its wholly-
owned subsidiary, Citizens and Farmers Bank, offers quality banking services to individuals, professionals, and small businesses through ten
branch offices serving the surrounding towns and counties. Citizens & Commerce Bank, which operates as a division of Citizens and Farmers
Bank, offers quality banking services in the Richmond market and has two branch offices. Citizens and Farmers Bank has four wholly-owned
subsidiaries. C&F Mortgage Corporation originates and sells residential mortgages. These mortgage services are provided through seven
offices in Virginia and three offices in Maryland. Brokerage services are offered through C&F Investment Services, Inc. C&F Title Agency,
Inc., offers title insurance services. Insurance services are offered through C&F Insurance Services, Inc. Trust services are provided in
association with The Trust Company of Virginia.
Return on Average Equity Return on Average Assets
[GRAPH] [GRAPH]
16.08% 17.81% 19.22% 15.99% 18.93% 1.90% 2.03% 2.19% 1.76% 2.09%
1997 1998 1999 2000 2001 1997 1998 1999 2000 2001
Net Income Earnings Per Share
dollars in thousands
[GRAPH] [GRAPH]
$4,937 $6,134 $6,756 $5,836 $7,989 $1.25 $1.56 $1.81 $1.60 $2.23
1997 1998 1999 2000 2001 1997 1998 1999 2000 2001
[PHOTO]
[PHOTO GRAPHIC]
LETTER FROM THE PRESIDENT
[PHOTO]
Larry G. Dillon
Chairman, President and
Chief Executive Officer
Dear Fellow Shareholders
On behalf of the Board of Directors, I am pleased to present the Annual Report of C&F Financial Corporation for the year 2001, another year
in which we achieved record growth and earnings. It was a year where unmatched drops in interest rates stagnated the earnings at Citizens and
Farmers Bank, yet precipitated record production and earnings at C&F Mortgage Corporation. It was also a year in which our country
experienced unbelievable acts of terrorism, which in turn played havoc on our economy. These acts brought back both patriotic and spiritual
values and served to unite us as a country. The record-breaking results of our company are pale compared to what has happened to us as a
country. The year 2001 will be one none of us will ever forget.
Net income in 2001 totaled just under $7.2 million (excluding the $776,000 after-tax gain on the sale of the Tappahannock Office to Northern
Neck State Bank, which occurred in the 4th quarter), up 24% from $5.8 million earned in 2000. This resulted in a return on average assets of
1.89% and a return on average equity of 17.09%, up from 1.76% and 15.99%, respectively, in 2000. Our earnings also compare favorably with
those of our peers who, as of September 2001, showed average annualized returns on average assets of 1.03% and average equity of 11.15%.
Earnings per share jumped from $1.60 to $2.01.
Earnings for the Corporation are up primarily due to the superb results of C&F Mortgage Corporation. You will note as you review this report
that the unprecedented eleven drops of the federal funds rate drastically affected the Bank's interest spread, which dropped by 34 basis points
during the year. This drop negated the Bank's asset growth for the year and, as mentioned above, was primarily responsible for the flat earnings
of the Bank. Also impacting the Bank was the increase in overhead costs associated with opening two new branches and the new technology
implemented over the last eighteen months.
The significant drop in interest rates, on the other hand, tremendously helped the Mortgage Corporation. With interest rates down, C&F
Mortgage saw its loan production more than double, increasing from $294 million in 2000 to $627 million in 2001, which resulted in more than
a 400% growth in earnings. Also affecting earnings in 2001 was the growth in revenues and earnings of both C&F Title Agency, Inc. and C&F
Investment Services, Inc., both of which saw their earnings more than double. The sale of the Tappahannock Office resulted in a one-time
$776,000 after-tax gain. This sale to Northern Neck State Bank was the result of an unsolicited offer from them that made economic sense to
us; in addition, Tappahannock is far removed from the rest of our branch network.
We saw many exciting changes for the Corporation in 2001. The most notable was the opening of our new 25,000 sq. ft. facility in Midlothian,
which is now the headquarters for C&F Mortgage
2 C & F Financial Corporation
[PHOTO]
The unique lobby design provides a warm atmosphere to welcome customers into the Citizens & Commerce Bank branch on Alverser Drive in
Midlothian.
Corporation and Citizens & Commerce Bank, a division of Citizens and Farmers Bank. This facility, located in a new commercial development
appropriately named the "C&F Center," offers the Mortgage Corporation greatly expanded facilities at a strategically located site and allows us
room for future expansion.
The bank portion of this facility offers Citizens & Commerce Bank not only a new and strategically important location, but has been designed
and built as one of the most unique banking lobbies in the country. In addition to the typical offices, teller line and new account desks, it offers
the customers two large television screens to watch continuously running news and two Internet workstations to be able to "surf the net." In
addition, there is a coffee bar, from which the net proceeds of coffee sales will be given to various local charities. These combined amenities
provide for an inviting setting to the customer, which is what we want. This philosophy is very different from some of our larger competitors
who are doing all they can to keep the customers out of their branches.
Also located within this facility are the headquarters of C&F Title Agency, Inc. and an office of C&F Investment Services, Inc. We can now
offer all of our customers and potential customers in the Midlothian market full banking services, brokerage services and mortgage banking
services. It truly is a financial "center."
In December of 2001, we also opened our twelfth banking office, in Sandston. This freestanding office offers all of the same inviting amenities
as our Midlothian office. Given the overwhelming volume of new accounts being opened, this office may become one of our busiest locations.
We saw many exciting changes for the Corporation in 2001. The most notable was the opening of our new 25,000 sq. ft. facility in Midlothian,
which is now the headquarters for C&F Mortgage Corporation and Citizens & Commerce Bank, a division of Citizens and Farmers Bank.
2001 Annual Report 3
[PHOTO]
Employees and customers enjoy the spacious coffee bar, television and Internet area at the Citizens & Commerce Bank branch on Alverser
Drive.
In January of 2001, we began offering our customers "imaged" monthly statements. This service allows us to offer our customers condensed
images of their cleared checks in a manner that allows them to better organize their home record keeping.
[75 YRS. LOGO]
We make every effort to provide our customers with the best products and services possible, therefore, we must constantly be improving our
training and technology. The year 2001 was no exception, as we made several enhancements to both our technology and offerings. Unseen to
the customer, and possibly most important to our speed of delivery, was a replacement of our mainframe computer system during 2001. Not
only will this change increase our computing speed and capacity, it will also keep us at the forefront of computing hardware.
In January of 2001, we began offering our customers "imaged" monthly statements. This service allows us to offer our customers condensed
images of their cleared checks in a manner that allows them to better organize their home record keeping. This system also offers two other
important services. First, it allows our internal research, either for our own purposes or that of the customer, to be almost instantaneous.
Secondly, after initiating our Internet banking service in the spring of 2001, our customers now have the ability to see the image of any cleared
check online.
Not only do our Internet banking customers have the ability to "see" their cleared items, they are now able to perform just about any banking
transaction online in the privacy of their own homes and at their own convenience. With our system being "real time," no matter whether the
customer is performing the transaction or inquiry within the branch, on our telephone banking system, or over the Internet, the customer will
always receive the same information.
The Board of Directors was sad to receive the recent resignation of P. Loy Harrell from the Board of Citizens and Farmers Bank, where he
4 C & F Financial Corporation
[PHOTO GRAPHIC]
had served as a Board member since 1966. The entire Board will sorely miss Mr. Harrell's experience, depth of knowledge and guidance.
During 2001, the Board appointed Audrey D. Holmes to the Board of Citizens and Farmers Bank. Ms. Holmes is a local attorney in the
Sandston market and not only provides knowledge of that market but also of the Charles City County market where she has been a lifelong
resident. Her knowledge of and respect in both markets as well as her expertise will be a great benefit to the Board.
At its meeting in January 2002, the Board appointed Barry R. Chernack, who has served as a member of the Board of Directors of Citizens and
Farmers Bank since 2000, to the Board of C&F Financial Corporation. Mr. Chernack, a past managing partner of PriceWaterhouseCoopers
LLP, will bring considerable accounting and business knowledge to both the Board and its Audit Committee.
The directors, officers, and staff of C&F Financial Corporation are committed to supporting the communities in which we are located and
demonstrate that support in many fashions. Most of our staff are very active in various civic groups, often giving many hours of their personal
time. These activities range from overseeing various "walk-a-thons," to coaching at the local high school, to serving on local community
boards. We are very appreciative of the communities we serve and try to give back in ways that keep us involved in these communities.
Our philosophy at C&F is that in order for us to be successful on a long-term basis, which is our primary goal, we have to look out for the
interests of three constituencies: our staff, who provide the backbone of what we do; the communities we serve, who provide our customers and
without which we would not exist; and our stockholders, who provide us the financial support. To look out for one above the others would lead
to failure. The interests of all have to be well served. We look out for our staff members by trying to assure fair compensation and benefits
packages to provide for them and their families; we provide them with growth and educational opportunities; and, we are constantly
challenging them with the changes both within the organization as well as the industry. We care for our communities by providing the best in
products and services we possibly can and we give back both personally and financially in as many ways as possible. And finally, we look out
for you, our stockholders, by striving to provide the best returns possible. We are ever cognizant that to remain a viable long-term organization
we must provide you with a solid return on your investment. We are not perfect, however we do strive for perfection in all we do.
Our thanks and appreciation go out to all of our constituencies for helping to make this organization what it is - a truly fine financial services
corporation. We thank you for your support and ask for your continued patronage as we celebrate our 75th year of providing financial services.
/s/ Larry G. Dillon
Larry G. Dillon
Chairman, President and Chief Executive Officer
[PHOTO]
Kitty Buckner-Branch Manager and Alice Robbins-Assistant Branch Manager discuss new customer opportunities at our Citizens and Farmers
Bank branch in Sandston.
2001 Annual Report 5
DIRECTORS AND ADVISORS
[PHOTO]
Citizens and Farmers Bank (back left to right)-- Bryan E. McKernon, Reginald H.
Nelson IV, Paul C. Robinson, J. P. Causey Jr., James H. Hudson III, Joshua H.
Lawson, and Thomas B. Whitmore Jr. (front left to right) Barry R. Chernack, Larry G. Dillon, Audrey D. Holmes, and William E. O'Connell
Jr.
C&F Financial Corporation/Citizens and Farmers Bank
J. P. Causey Jr.*+
Senior Vice President, Secretary &
General Counsel
Chesapeake Corporation
Barry R. Chernack*+
Retired Partner
PriceWaterhouseCoopers LLP
Larry G. Dillon *+
Chairman, President & CEO
C&F Financial Corporation
Citizens and Farmers Bank
P. L. Harrell+
President
Old Dominion Grain, Inc.
Audrey D. Holmes+
Attorney-at-Law
Audrey D. Holmes, Attorney-at-Law
James H. Hudson III*+
Attorney-at-Law
Hudson & Bondurant, P.C.
Joshua H. Lawson*+
President
Thrift Insurance Corporation
Bryan E. McKernon+
President & CEO
C&F Mortgage Corporation
Reginald H. Nelson IV+
Retired Partner
Colonial Acres Farm
William E. O'Connell Jr.*+
Chessie Professor of Business
The College of William and Mary
Paul C. Robinson*+
Owner & President
Francisco, Robinson & Associates, Realtors
Thomas B. Whitmore Jr.+
Retired President
Whitmore Chevrolet, Oldsmobile, Pontiac Co., Inc.
Citizens & Commerce Bank
Frank Bell III
President
Citizens & Commerce Bank
Jeffery W. Jones
Chairman & Chief Executive Officer
WFofR, Incorporated
S. Craig Lane
President
Lane & Hamner, P.C.
William E. O'Connell Jr.
Chairman of the Board
Chessie Professor of Business
The College of William and Mary
Meade A. Spotts
President
Spotts, Fain, Chappell & Anderson, P.C.
Scott E. Strickler
Treasurer
Robins Insurance Agency, Inc.
Katherine K. Wagner
Senior Vice President
Commercial Lending
Citizens & Commerce Bank
C&F Mortgage Corporation
J. P. Causey Jr.
Senior Vice President, Secretary &
General Counsel
Chesapeake Corporation
Larry G. Dillon
Chairman of the Board
James H. Hudson III
Attorney-at-Law
Hudson & Bondurant, P.C.
Bryan E. McKernon
President & CEO
C&F Mortgage Corporation
William E. O'Connell Jr.
Chessie Professor of Business
The College of William and Mary
Paul C. Robinson
Owner & President
Francisco, Robinson & Associates, Realtors
C&F Investment Services, Inc.
Larry G. Dillon
President
Eric F. Nost
Vice President
Thomas F. Cherry
Treasurer
Gari B. Sullivan
Secretary
* C&F Financial Corporation Board Member
+ Citizens and Farmers Bank Board Member
Citizens & Commerce Bank Board (back left to right)-- Scott E. Strickler, S. Craig Lane, Katherine K. Wagner, Frank Bell III, and William E.
O'Connell Jr. (front left to right) Jeffery W.
6 C & F Financial Corporation
Jones and Meade A. Spotts
[PHOTO]
OFFICERS AND LOCATIONS
[GRAPHIC]
Independent Public Accountants
Yount, Hyde & Barbour, P.C.
Winchester, VA
Corporate Counsel
Hudson & Bondurant, P.C.
West Point, VA
Varina Advisory Board
Robert A. Canfield
Attorney-at-Law
Canfield, Shapiro, Baer, Heller & Johnston
Robert F. Nelson Jr.
Professional Engineer
Engineering Design Associates
Phil T. Rutledge Jr.
Retired Deputy County Manager
County of Henrico
Sandra W. Seelmann
Real Estate Broker/Owner
Varina & Seelmann Realty
Citizens and Farmers Bank
ADMINISTRATIVE OFFICE
802 Main Street
West Point, Virginia 23181
(804) 843-2360
Larry G. Dillon *
Chairman, President & CEO
Maria E. Campbell
Senior Vice President, Retail
Thomas F. Cherry *
Senior Vice President & CFO
Gari B. Sullivan *
Senior Vice President & Secretary
Leslie A. Campbell
Vice President, Loan Operations
Sandra S. Fryer
Vice President, Operations
William B. Littreal
Vice President, Information Systems
Deborah R. Nichols
Vice President, Quality Control
Laura H. Shreaves
Vice President & Director of Human Resources
* Officers of C&F Financial Corporation
WEST POINT -- MAIN OFFICE
Thomas W. Stephenson Jr.
Branch Manager
802 Main Street
West Point, Virginia 23181
(804) 843-2360
JAMESTOWN ROAD
Alec J. Nuttall
Assistant Vice President
& Branch Manager
1167 Jamestown Road
Williamsburg, Virginia 23185
(757) 220-3293
LONGHILL ROAD
Sandra C. St. Clair
Assistant Vice President
& Branch Manager
4780 Longhill Road
Williamsburg, Virginia 23188
(757) 565-0593
MIDDLESEX
N. Susan Gordon
Assistant Vice President
& Branch Manager
Route 33 at Route 641
Saluda, Virginia 23149
(804) 758-3641
NORGE
Robert J. Unangst
Branch Manager
7534 Richmond Road
Norge, Virginia 23127
(757) 564-8114
PROVIDENCE FORGE
James D. W. King
Vice President & Branch Manager
3501 N. Courthouse Road
Providence Forge, Virginia 23140
(804) 966-2264
QUINTON
Mary T. "Joy" Whitley
Assistant Vice President
& Branch Manager
2580 New Kent Highway
Quinton, Virginia 23141
(804) 932-4383
SANDSTON
Katherine P. Buckner
Assistant Vice President
& Branch Manager
100 East Williamsburg Road
Sandston, Virginia 23150
(804) 737-7005
VARINA
Susan M. Terry
Branch Manager
Route 5 at Strath Road
Richmond, Virginia 23231
(804) 795-7000
Tracy E. Pendleton
Vice President & Area Credit Manager
(804) 795-7706
WEST POINT -- 14TH STREET
Karen T. Richardson
Assistant Vice President & Branch Manager 415 Fourteenth Street
West Point, Virginia 23181
(804) 843-2708
CONSTRUCTION LENDING OFFICE
Terrence C. Gates
Vice President, Real Estate Construction C&F Center
1400 Alverser Drive
Midlothian, Virginia 23113
(804) 858-8351
Citizens & Commerce Bank
ADMINISTRATIVE OFFICE
C&F Center
1400 Alverser Drive
Midlothian, Virginia 23113
(804) 378-0332
Frank Bell III
President
Katherine K. Wagner
Senior Vice President
Commercial Lending
MIDLOTHIAN
Sandra R. Gee
Branch Manager
C&F Center
1400 Alverser Drive
Midlothian, Virginia 23113
(804) 378-0332
RICHMOND
Michele Hottle
Branch Manager
8001 West Broad Street
Richmond, Virginia 23294
(804) 290-0402
2001 Annual Report 7
OFFICERS AND LOCATIONS
[GRAPHIC]
C&F Mortgage Corporation
ADMINISTRATIVE OFFICE
1400 Alverser Drive
Midlothian, VA 23113
(804) 858-8300
Bryan E. McKernon
President & Chief Executive Officer
Mark A. Fox
Executive Vice President &
Chief Financial Officer
Donna G. Jarratt
Senior Vice President & Project Manager
Kevin A. McCann
Vice President & Controller
Tracy L. Bishop
Vice President & Human Resources Manager
M. Kathy Burley
Vice President & Closing Manager
James A. Ryan, III
Vice President & Underwriting Manager
RICHMOND, VIRGINIA
1400 Alverser Drive
Midlothian, VA 23113
(804) 858-8300
Donald R. Jordan
Vice President & Branch Manager
Daniel J. Murphy
Vice President & Production Manager
Susan P. Burkett
Vice President & Operations Manager
RICHMOND, VIRGINIA
7231 Forest Avenue, Suite 202
Richmond, Virginia 23226
(804) 673-3453
Page C. Yonce
Vice President & Branch Manager
Constance Bachman-Hamilton
Vice President & Production Manager
CHESTER, VIRGINIA
4517 West Hundred Road
Chester, Virginia 23831
(804) 748-2900
Stephen L. Fuller
Vice President & Branch Manager
CHARLOTTESVILLE, VIRGINIA
1420 Greenbrier Place
Charlottesville, Virginia 22901
(434) 974-1450
William E. Hamrick
Vice President & Branch Manager
Philip N. Mahone
Vice President & Branch Manager
NEWPORT NEWS, VIRGINIA
703 Thimble Shoals Boulevard, Suite C4
Newport News, Virginia 23606
(757) 873-8200
Linda H. Gaskins
Vice President & Branch Manager
WILLIAMSBURG, VIRGINIA
1167-A Jamestown Road
Williamsburg, Virginia 23185
(757) 259-1200
Irving E. "Ed" Jenkins
Vice President & Branch Manager
LYNCHBURG, VIRGINIA
17835 Forest Road, Suite B
Forest, Virginia 24551
(434) 385-0700
J. Garnett Atkins
Vice President & Branch Manager
CROFTON, MARYLAND
2191 Defense Highway, Suite 200
Crofton, Maryland 21114
(410) 721-6770
Michael J. Mazzola
Senior Vice President & Maryland Area
Manager
ANNAPOLIS, MARYLAND
20 Ridgely Avenue, Suite 302
Annapolis, Maryland 21401
(410) 263-9229
William J. Regan
Vice President & Branch Manager
ELLICOTT CITY, MARYLAND
5052 Dorsey Hall Drive
Suite 202
Ellicott City , MD 21042
(410) 964-9223
Scott B. Segrist
Branch Manager
Robert G. Menton
Branch Manager
APPRAISAL SERVICES
1400 Alverser Drive
Midlothian, VA 23113
(804) 858-8300
H. Daniel Salomonsky
Vice President & Appraisal Manager
C&F Title Agency, Inc.
1400 Alverser Drive
Midlothian, VA 23113
(804) 858-8399
Eileen A. Cherry
Vice President & Title Insurance Underwriter
C&F Investment Services, Inc.
Eric F. Nost
Vice President & Manager
417 Fourteenth Street
West Point, Virginia 23181
(804) 843-4584
(800) 583-3863
Douglas L. Hartz
Assistant Vice President
1400 Alverser Drive
Midlothian, Virginia 23113
(804) 378-7296
(888) 435-2033
Douglas L. Cash, Jr.
Branch Manager
1167 Jamestown Road
Williamsburg, Virginia 23185
(757) 229-5629
8 C & F Financial Corporation
[C&F LOGO]
[LOGO] C F F I
NASDAQ
LISTED
Stock Listing
Current market quotations for the common stock of C&F Financial Corporation are available under the symbol CFFI.
Stock Transfer Agent
American Stock Transfer & Trust Company serves as transfer agent for the Corporation. You may write them at 40 Wall Street, New York, NY
10005, or telephone them toll-free at 1-800-937-5449.
Investor Relations & Financial Statements A copy of Form 10-K and quarterly reports on Form 10-Q, as filed with the Securities and Exchange
Commission, are available without charge to stockholders upon written request. Requests for this or other financial information about C&F
Financial Corporation should be directed to:
Thomas Cherry
Senior Vice President and Chief Financial Officer C&F Financial Corporation
P.O. Box 391
West Point, VA 23181
[C&F LOGO]
C&F Financial Corporation 802 Main Street o PO Box 391 West Point, Virginia 23181 (804) 843-2360
www.cffc.com
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-63699, No.333-67535, No. 333-
89551, No. 333-89505, and No. 333-35996) and Form S-3 (No. 333-60877 and No. 333-30497) and in the related Prospectuses, of our report,
dated January 15, 2002, relating to the consolidated financial statements of C&F Financial Corporation and Subsidiary, included in the 2001
Annual Report of Shareholders and incorporated by reference in the Annual Report on Form 10-K for the year ended December 31, 2001.
/s/ Yount, Hyde & Barbour, P.C.
Winchester, Virginia
March 14, 2002
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
C & F FINANCIAL CORPORRATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
[LOGO]
C&F Financial Corporation Eighth and Main Streets P.O. Box 391 West Point, Virginia 23181
Dear Fellow Shareholders:
You are cordially invited to attend the 2002 Annual Meeting of Shareholders of C&F Financial Corporation, the holding company for Citizens
and Farmers Bank. The meeting will be held on Tuesday, April 16, 2002, at 3:30 p.m. at the Father van den Boogaard Center, 3510 King
William Avenue, West Point, Virginia. The accompanying Notice and Proxy Statement describe the matters to be presented at the meeting.
Enclosed is our Annual Report to Shareholders that will be reviewed at the Annual Meeting.
Please complete, sign, date, and return the enclosed proxy card as soon as possible. Whether or not you will be able to attend the Annual
Meeting, it is important that your shares be represented and your vote recorded. If you decide to attend the Annual Meeting in person, you can
revoke your proxy at any time before it is voted at the Annual Meeting.
We appreciate your continuing loyalty and support of C&F Financial Corporation.
Sincerely,
/s/ Larry G. Dillon
Larry G. Dillon
President & Chief Executive Officer
West Point, Virginia
March 15, 2002
C&F FINANCIAL CORPORATION
Eighth and Main Streets
P.O. Box 391
West Point, Virginia 23181
NOTICE OF 2002 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 16, 2002
The 2002 Annual Meeting of Shareholders of C&F Financial Corporation (the "Company") will be held at the Father van den Boogaard Center,
3510 King William Avenue, West Point, Virginia, on Tuesday, April 16, 2002, at 3:30 p.m. for the following purposes:
1. To elect three Class III directors to the Board of Directors of the Company to serve until the 2005 Annual Meeting of Shareholders, as
described in the Proxy Statement accompanying this notice.
2. To ratify the Board of Directors' appointment of Yount, Hyde & Barbour, P.C., as the Company's independent public accountants for 2002.
3. To transact such other business as may properly come before the meeting or any adjournment thereof.
Shareholders of record at the close of business on February 26, 2002, are entitled to notice of and to vote at the Annual Meeting or any
adjournment thereof.
By Order of the Board of Directors,
/s/ Gari B. Sullivan
Gari B. Sullivan
Secretary
March 15, 2002
IMPORTANT NOTICE
Please complete, sign, date, and return the enclosed proxy card in the accompanying postage paid envelope so that your shares will be
represented at the meeting. Shareholders attending the meeting may personally vote on all matters that are considered, in which event their
signed proxies are revoked.
C&F FINANCIAL CORPORATION
Eighth and Main Streets
P.O. Box 391
West Point, Virginia 23181
PROXY STATEMENT
2002 ANNUAL MEETING OF SHAREHOLDERS
April 16, 2002
GENERAL
The following information is furnished in connection with the solicitation by and on behalf of the Board of Directors of the enclosed proxy to
be used at the 2002 Annual Meeting of the Shareholders (the "Annual Meeting") of C&F Financial Corporation (the "Company") to be held
Tuesday, April 16, 2002, at 3:30 p.m. at the Father van den Boogaard Center, 3510 King William Avenue, West Point, Virginia. The
approximate mailing date of this Proxy Statement and accompanying proxy is March 15, 2002.
Revocation and Voting of Proxies
Execution of a proxy will not affect a shareholder's right to attend the Annual Meeting and to vote in person. Any shareholder who has
executed and returned a proxy may revoke it by attending the Annual Meeting and requesting to vote in person. A shareholder may also revoke
his proxy at any time before it is exercised by filing a written notice with the Company or by submitting a proxy bearing a later date. Proxies
will extend to, and will be voted at, any properly adjourned session of the Annual Meeting. If a shareholder specifies how the proxy is to be
voted with respect to any proposals for which a choice is provided, the proxy will be voted in accordance with such specifications. If a
shareholder fails to specify with respect to such proposals, the proxy will be voted FOR proposals 1, and 2, as set forth in the accompanying
notice and further described herein.
Voting Rights of Shareholders
Only those shareholders of record at the close of business on February 26, 2002, are entitled to notice of and to vote at the Annual Meeting, or
any adjournments thereof. The number of shares of common stock of the Company outstanding and entitled to vote at the Annual Meeting is
3,529,726. The Company has no other class of stock outstanding. A majority of the votes entitled to be cast, represented in person or by proxy,
will constitute a quorum for the transaction of business. Each share of Company common stock entitles the record holder thereof to one vote
upon each matter to be voted upon at the Annual Meeting.
With regard to the election of directors, votes may be cast in favor or withheld. If a quorum is present, the nominees receiving a plurality of the
votes cast at the Annual Meeting will be elected directors; therefore, votes withheld will have no effect. The ratification of Yount, Hyde &
Barbour, P.C. as the Company's independent public accountants requires an affirmative vote of a majority of the shares cast on the matter.
Thus, although abstentions and broker non-votes (shares held by customers which may not be voted on certain matters because the broker has
not received specific instructions from the customers) are counted for purposes of determining the presence or absence of a quorum for the
transaction of business, they are generally not counted for purposes of determining whether such a proposal has been approved, and therefore
have no effect.
1
Solicitation of Proxies
The cost of solicitation of proxies will be borne by the Company. Solicitations will be made only by the use of the mail, except that officers and
regular employees of the Company and Citizens and Farmers Bank (the "Bank") may make solicitations of proxies by telephone, telegram,
special letter, or by special call, acting without compensation other than their regular compensation. It is contemplated that brokerage houses
and other nominees, custodians, and fiduciaries will be requested to forward the proxy soliciting material to the beneficial owners of the stock
held of record by such persons, and the Company will reimburse them for their charges and expenses in this connection.
Security Ownership of Certain Beneficial Owners and Management
The following table shows the share ownership as of February 26, 2002, of the shareholders known to the Company to be the beneficial owners
of more than 5% of the Company's common stock, par value $1.00 per share, which is the Company's only voting security outstanding.
Amount and Nature
Name and Address of Beneficial Percent
of Beneficial Owner Ownership/(1)/ of Class
------------------- --------- --------
SunTrust Banks, Inc. 244,828/(2)/ 6.9%
303 Peachtree Street, Suite 1500
Atlanta, Georgia 30308
_________________________
/(1)/ For purposes of this table, beneficial ownership has been determined in
accordance with the provisions of Rule 13d-3 of the Securities Exchange
Act of 1934 under which, in general, a person is deemed to be the
beneficial owner of a security if he or she has or shares the power to
vote or direct the voting of the security or the power to dispose of or
direct the disposition of the security, or if he or she has the right
to acquire beneficial ownership of the security within sixty days.
/(2)/ Based on Amendment No. 3 to a Schedule 13G filed with the Securities
and Exchange Commission on February 14, 2002 by SunTrust Banks, Inc.
and certain of its subsidiaries. According to this Amendment No. 3,
SunTrust Banks, Inc. and these subsidiaries have sole voting power with
respect to 244,828 of theses shares, sole investment power with respect
to 38,680 of these shares and shared investment power with respect to
206,148 of these shares. The 244,828 shares are held by one or more
subsidiaries of SunTrust Banks, Inc. in various fiduciary and agency
capacities. SunTrust Banks, Inc. and such subsidiaries disclaim any
beneficial interest in any of the shares reported.
The following table shows as of February 26, 2002, the beneficial
ownership of the Company's common stock for each director, director nominee, certain executive officers and for all directors, director
nominees, and executive officers of the Company as a group.
Amount and Nature of
Name Beneficial Ownership/(1)/ Percent of Class
----- ------------------------- ----------------
J. P. Causey Jr. 36,938/(3)/ 1.0%
Barry R. Chernack 605 *
Larry G. Dillon 46,202/(2)/ 1.3%
James H. Hudson III 5,590/(3)/ *
Joshua H. Lawson 30,922/(3)/ *
William E. O'Connell Jr. 5,750/(3)/ *
Paul C. Robinson 6,192/(3)/ *
Thomas F. Cherry 5,700/(2)/ *
Gari B. Sullivan 3,237/(2)/ *
All Directors, Nominees and Executive
Officers as a group (9 persons) 141,136 4.0%
2
* Represents less than 1% of the total outstanding shares of the Company's
common stock.
/(1)/ For purposes of this table, beneficial ownership has been determined in
accordance with the provisions of Rule 13d-3 of the Securities Exchange
Act of 1934 under which, in general, a person is deemed to be the
beneficial owner of a security if he or she has or shares the power to
vote or direct the voting of the security or the power to dispose of or
direct the disposition of the security, or if he or she has the right to
acquire beneficial ownership of the security within sixty days.
/(2)/ Includes 17,700 shares, 5,500 shares, and 1,500 shares for Mr. Dillon,
Mr. Cherry, and Mr. Sullivan, respectively, as to which they hold
presently exercisable options. A description of such options is set
forth below in greater detail in "Compensation Committee Report on
Executive Compensation."
/(3)/ Includes 3,750 shares that may be acquired upon the exercise of options.
A description of the plan under which these options were issued is set
forth below in "Director Compensation."
PROPOSAL ONE
ELECTION OF DIRECTORS
The Company's Board is divided into three classes (I, II, and III) of
directors. The term of office for Class III directors will expire at the Annual Meeting. Three persons named below, each of whom currently
serves as a director of the Company, will be nominated to serve as Class III directors. If elected, the Class III nominees will serve until the
2005 Annual Meeting of Shareholders. The persons named in the proxy will vote for the election of the nominees named below unless
authority is withheld. The Company's Board believes that the nominees will be available and able to serve as directors, but if any of these
persons should not be available or able to serve, the proxies may exercise discretionary authority to vote for a substitute proposed by the
Company's Board.
Certain information concerning the nominees for election at the Annual Meeting as Class III directors is set forth below, as well as certain
information about the other Class I and II directors, who will continue in office until the 2003 and 2004 Annual Meeting of Shareholders,
respectively.
Principal
Served Occupation During
Name (Age) Since/(1)/ Past Five Years
---------- ---------- ---------------
Class I Directors (Serving Until the 2003 Annual Meeting)
Larry G. Dillon (49) 1989 Chairman, President and
Chief Executive Officer of the
Company and the Bank
James H. Hudson III (53) 1997 Attorney-at-Law
Hudson & Bondurant, P.C.
Class II Directors (Serving Until the 2004 Annual Meeting)
Joshua H. Lawson (60) 1993 President, Thrift Insurance Corporation
Paul C. Robinson (44) 1994 President, Francisco, Robinson &
Associates, Inc.
Class III Directors (Nominees) (Serving Until the 2005 Annual Meeting)
J. P. Causey Jr. (58) 1984 Executive Vice President, Secretary &
General Counsel of Chesapeake
Corporation 2001 to present;
Senior Vice President prior to 2001
3
Barry R. Chernack (54) 2000 Retired January 2000 to present;
Managing Partner, Pricewaterhouse-
Coopers, LLP, Southern Virginia Practice
prior to January 2000
William E. O'Connell Jr. (64) 1994 Chessie Professor of Business,
The College of William and Mary
(1) Refers to the year in which the director was first elected to the Board of Directors of the Bank.
The Board of Directors of the Bank consists of the seven members of the Company's Board listed above, as well as, Audrey D. Holmes, Bryan
E. McKernon, Reginald H. Nelson IV, and Thomas B. Whitmore Jr.
The Board of Directors is not aware of any family relationship between any director, executive officer or person nominated by the Company to
become director; nor is the Board of Directors aware of any involvement in legal proceedings which are material to an evaluation of the ability
or integrity of any director or person nominated to become a director. Unless authority for the nominees is withheld, the shares represented by
the enclosed proxy card, if executed and returned, will be voted FOR the election of the nominees proposed by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE DIRECTORS NOMINATED TO SERVE AS CLASS III
DIRECTORS.
Board Committees and Attendance
During 2001, there were eight meetings of the Board of Directors of the Company. Each director attended at least 75% of all meetings of the
boards and committees on which he or she served. The Board of Directors of the Company has a Capital Plan Committee and an Audit
Committee and the Board of Directors of the Bank has an Executive Committee and a Compensation Committee. The Board of Directors of the
Company acts as the nominating committee for nominees to be voted on for election as directors.
In its capacity as the nominating committee, the Board of Directors will accept for consideration shareholder's nominations for directors if
made in writing. In accordance with the Company's bylaws, such a shareholder nomination must include the nominee's written consent to the
nomination, sufficient background information with respect to the nominee, sufficient identification of the nominating shareholder and a
representation by shareholder of his or her intention to appear at the Annual Meeting (in person or by proxy) to nominate the individual
specified in the notice. Nominations must be received by the Company's Secretary at the Company's principal office in West Point, Virginia, no
later than February 13, 2003 in order to be considered for the next annual election of directors.
Members of the Bank's Executive Committee are Messrs. Causey, Dillon, Hudson, and O'Connell. The Executive Committee reviews various
matters and submits proposals or recommendations to the Board of Directors. The Executive Committee met one time during 2001.
Members of the Bank's Compensation Committee are Messrs. Causey, Chernack, Hudson, and Whitmore. The Compensation Committee
recommends the level of compensation of each officer of the Bank, the granting of stock options and other employee remuneration plans to the
Board of Directors. The Compensation Committee met two times during 2001.
Members of the Company's Audit Committee are Messrs. Causey, Chernack, Lawson, O'Connell, and Robinson. The Audit Committee reviews
and approves various audit functions including the year-end audit performed by the Company's independent public accountants. The Audit
Committee met four times during 2001. See Report of the Audit Committee on page 10.
4
Directors' Compensation
Each of the directors of the Company is also a director of the Bank. Non-employee members of the Board of Directors of the Bank receive an
annual retainer of $2,500, payable quarterly, with a base meeting fee of $300 per day for Company or Bank meetings and a fee of $100 for each
secondary meeting of the Company, Bank, or any committees thereof held on the same day as a meeting for which the base meeting fee is paid.
In addition to cash compensation, non-employee members of the Board of Directors of the Bank participate in the Non-Employee Directors'
Stock Compensation Plan. Under this plan, directors are granted the option to purchase the Company's common stock at a price equal to the fair
market value of the stock at the date of grant. Options are exercisable twelve months after the date of grant and expire ten years from the date
of grant. On May 1, 2001, all non-employee members of the Board of Directors of the Bank were granted 1,500 options with an exercise price
of $16.75 per share.
Interest of Management in Certain Transactions
As of December 31, 2001, the total maximum extensions of credit (including used and unused lines of credit) to policy-making officers,
directors, and their associates amounted to $2,583,189, or 5.77%, of total year-end capital. The maximum aggregate amount of such
indebtedness outstanding during 2001 was $1,174,198, or 2.62%, of total year-end capital. These loans were made in the ordinary course of the
Bank's business, on the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with
others, and do not involve more than the normal risks of collectibility or present other unfavorable features. The Bank expects to have in the
future similar banking transactions with officers, directors, and their associates.
Executive Compensation
Summary of Cash and Certain Other Compensations. The following table shows the cash compensation paid to Mr. Dillon, President and Chief
Executive Officer of the Company, Thomas F. Cherry, Senior Vice President and Chief Financial Officer of the Company, and Gari B.
Sullivan, Senior Vice President and Secretary of the Company, during 2001, 2000, and 1999. During 2001, no other executive officer of the
Company received compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
--------------------------------------------------- ------------
All
Name and Other Annual Other
Principal Position Year Salary Bonus/(1)/ Compensation/(2)/ Options/(3)/ Compensation/(4)/
------------------ ---- ------ ----- ------------ ------- ------------
Larry G. Dillon 2001 $172,500 $60,000 - 3,500 $28,518
President/Chief 2000 167,500 50,000 - 3,500 27,533
Executive Officer 1999 152,500 50,000 - 3,500 22,736
Thomas F. Cherry 2001 104,000 25,000 - 2,500 22,725
Senior Vice 2000 100,000 20,000 - 2,500 21,773
President/CFO 1999 89,000 20,000 - 2,500 10,410
Gari B. Sullivan 2001 94,000 18,000 - 2,000 29,048
Senior Vice 2000 90,500 13,000 - 2,000 28,489
President/Secretary 1999 87,500 13,000 - 2,000 29,811
5
/(1)/ All bonuses were paid under the Management Incentive Bonus Plan.
/(2)/ The amount of compensation in the form of perquisites or other personal
benefits properly categorized in this column according to the disclosure
rules adopted by the Securities and Exchange Commission did not exceed
the lesser of either $50,000, or 10% of the total annual salary and
bonus reported in each of the three years reported for Mr. Dillon, Mr.
Cherry, and Mr. Sullivan, respectively.
/(3)/ Year 2001 options were granted at an exercise price of $19.05 per share;
year 2000 options were granted at an exercise price of $15.75 per share;
year 1999 options were granted at an exercise price of $17.00 per share.
/(4)/ $8,500, $7,680, and $8,000 were contributed for Mr. Dillon, $6,125,
$5,773, and $5,210 were contributed for Mr. Cherry, and $5,364, $4,980,
and $4,975 were contributed for Mr. Sullivan under the Bank's
Profit-Sharing Plan for 2001, 2000, and 1999, respectively. $6,218,
$6,218, and $6,736 were contributed for Mr. Dillon and $18,334, $18,334,
and $19,861 were contributed for Mr. Sullivan under the Bank's
Split-Dollar Insurance Program for 2001, 2000, and 1999, respectively.
$8,500, $8,000, and $8,000 were contributed for Mr. Dillon, $6,200,
$6,000, and $5,200 were contributed for Mr. Cherry, and $5,350, $5,175,
and $4,975 were contributed for Mr. Sullivan under the Bank's 401(k)
Plan for 2001, 2000, and 1999, respectively. $5,300 and $5,635 were
contributed for Mr. Dillon and $10,400 and $10,000 for Mr. Cherry, under
the Company's Executive Deferred Compensation Plan for 2001 and 2000,
respectively.
Stock Options and SAR. The following table shows all grants of options
to Messrs. Dillon, Cherry, and Sullivan in 2001:
Option/SAR Grants in Last Fiscal Year
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
-------------------------------------------------------------------- ---------------
% of Total
Options Granted Exercise or
Options to Employees in Base Price Expiration 5% 10%
Name Granted (#) (1) Fiscal Year ($/Sh) Date ($) ($)
---- --------------- ----------- ------ ---- --- ---
Larry G. Dillon 3,500 6.23% $19.05 12/17/11 $41,932 $106,263
Thomas F. Cherry 2,500 4.45% 19.05 12/17/11 29,951 75,902
Gari B. Sullivan 2,000 3.56% 19.05 12/17/11 23,961 60,722
/(1)/ Vesting is as follows: 100% on December 18, 2006.
Option/SAR Exercises and Holdings. The following table shows stock options exercised by Messrs. Dillon, Cherry, and Sullivan in 2001.
6
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Options/SAR Values
Value of Unexercised
Number of Unexercised In-the-Money
Options at Options at
Shares December 31, 2001 (#) December 31, 2001($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
---- ------------ ------------ ------------- -------------
Larry G. Dillon 2,000 $18,000 17,700/ $141,613/
10,500 28,700
Thomas F. Cherry -- -- 5,500/ 30,313/
7,500 20,500
Gari B. Sullivan 3,000 15,700 2,700/ 11,063/
6,000 16,400
Change in Control Agreements
The Company has entered into "change in control agreements" with Mr. Dillon and Mr. Cherry. The agreement for Mr. Dillon provides certain
payments and benefits in the event of a termination of his employment by the Company without "cause," or by Mr. Dillon for "good reason,"
during the period beginning on the occurrence of a "change in control" (as defined in the agreement) of the Company and ending sixty-one
days after the second anniversary of the change in control date. In such event, Mr. Dillon would be entitled (i) to receive in 12 consecutive
quarterly installments, or in a lump sum, two and one-half times the sum of his highest aggregate annual base salary during the 24 month
period preceding the change in control date and his highest aggregate annual bonus for the three fiscal years preceding the change in control
date; (ii) for a period of three years following termination, to receive continuing health insurance, life insurance, split-dollar insurance, and
similar benefits under the Company's welfare benefit plans and to have the three year period credited as service towards completion of any
service requirement for retiree coverage under the Company's welfare benefit plans; and (iii) if Mr. Dillon requests within one year after his
termination to have the Company acquire his residence for its appraised fair market value.
The agreement for Mr. Cherry provides certain payments and benefits in the event of a termination of his employment by the Company without
"cause," or by Mr. Cherry for "good reason," during the period beginning on the occurrence of a "change in control" (as defined in the
agreement) of the Company and ending sixty-one days after the first anniversary of the change in control date. In such event, Mr. Cherry would
be entitled (i) to receive in four consecutive quarterly installments, or in a lump sum, the sum of his highest aggregate annual base salary during
the 24 month period preceding the change in control date and his highest aggregate annual bonus for the three fiscal years preceding the change
in control date; and (ii) for a period of one year following termination, to receive continuing health insurance, life insurance, and similar
benefits under the Company's welfare benefit plans and to have the one year period credited as service towards completion of any service
requirement for retiree coverage under the Company's welfare benefit plans.
During the term of the agreements following a change in control, Mr. Dillon or Mr. Cherry may voluntarily terminate his employment and
become entitled to these payments and benefits under certain circumstances. These circumstances include, but are not limited to, a material
adverse change in his position, authority, or responsibilities, or a reduction in his rate of annual base salary, benefits (including incentives,
bonuses, stock compensation, and retirement and welfare plan coverage), or other perquisites as in effect immediately prior to the change in
control date.
Payments and benefits provided under the agreements will be reduced, if and to the extent necessary, so that Mr. Dillon and Mr. Cherry will
not be subject to a federal excise tax on, and the Company will not be denied an income tax deduction on account of having made, excess
parachute payments.
7
Employee Benefit Plans
The Bank has a Non-Contributory Defined Benefit Retirement Plan (the "Retirement Plan") covering substantially all employees who have
reached the age of 21 and have been fully employed for at least one year. The Retirement Plan provides participants with retirement benefits
related to salary and years of credited service. Employees become vested after five plan years of service, and the normal retirement date is the
plan anniversary date nearest the employee's 65th birthday. The Retirement Plan does not cover directors who are not active employees. The
amount expensed for the Retirement Plan during the year ended December 31, 2001, was $177,672.
The following table shows the estimated annual retirement benefits payable to employees in the average annual salary and years of service
classifications set forth below assuming retirement at the normal retirement age of 65.
Consecutive Five-Year Years of Credited Service
Average Salary 15 20 25 30 35
--------------------- ------ ------ ------ ------ ------
$ 25,000 $ 4,688 $ 6,250 $ 7,813 $ 8,750 $ 9,688
40,000 7,815 10,420 13,025 14,630 16,235
55,000 12,315 16,420 20,525 23,255 25,985
75,000 18,315 24,420 30,525 34,755 38,985
100,000 25,815 34,420 43,025 49,130 55,235
125,000 33,315 44,420 55,525 63,505 71,485
150,000 40,815 54,420 68,025 77,880 87,735
170,000 46,815 62,420 78,025 89,380 100,735
Benefits under the Retirement Plan are based on a straight life annuity assuming full benefit at age 65, no offsets, and covered compensation of
$35,400 for a person age 65 in 2000. Compensation is currently limited to $170,000 by the Internal Revenue Code, but is anticipated to
increase to $200,000, effective October 1, 2002. The estimated annual benefit payable under the Retirement Plan upon retirement is $90,511,
$58,109, and $24,033 for Messrs. Dillon, Cherry, and Sullivan, respectively, credited with 40 years of service for Messrs. Dillon and Cherry
and 15 years of service for Mr. Sullivan. Benefits are estimated on the basis that they will continue to receive, until age 65, covered salary in
the same amount paid in 2001.
Compensation Committee Report on Executive Compensation
The Compensation Committee (the "Committee"), which is composed of non-employee Directors of the Company and the Bank listed below,
recommends to the Board of Directors of the Bank (the "Bank Board") the annual salary levels and any bonuses to be paid to the Bank's
executive officers. The Committee also makes recommendations to the Bank Board regarding the issuance of stock options and other
compensation related matters.
Currently, the individuals serving as Chief Executive Officer and executive officers of the Company also serve in the same capacities,
respectively, for the Bank. These officers are presently compensated for services rendered by them to the Bank, but not for services rendered by
them to the Company.
The primary objective of the Bank's executive compensation program is to attract and retain highly skilled and motivated executive officers
who will manage the Bank in a manner that will promote its growth and profitability and advance the interest of the Company's shareholders.
As such, the compensation program is designed to provide levels of compensation which are reflective of both the individual's and the
organization's performance in achieving the organization's goals and objectives, both financial and non-financial, and in helping to build value
for the Company's shareholders. Based on its evaluation of these factors, the Committee believes that the executive officers are dedicated to
achieving significant improvements in long-term financial performance
8
and that the compensation plans the Committee has implemented and administered have contributed to achieving this management focus.
The principal elements of the Bank's compensation program include base annual salary, split-dollar insurance participation, short-term
incentive compensation under the Bank's Management Incentive Bonus Plan (detailed below), long-term incentives through the grants of stock
options under the Incentive Plan (detailed below), and employer contributions under the amended Executive's Deferred Compensation Plan
(detailed below).
The Bank adopted a Management Incentive Bonus Plan (the "Bonus Plan") effective January 1, 1987. The Bonus Plan is offered to selected
members of management. The bonus is derived from a pool of funds determined by the Bank's total performance relative to (1) prescribed
growth rates of assets and deposits, (2) return on average assets, and (3) absolute level of net income. Attainment, in whole or in part, of these
goals dictates the amount set aside in the pool of funds. Evaluation of attainment and approval of the pool amount is done by the Bank Board.
Payment of the bonus is based on individual performance and paid in cash as a percentage of the respective individual's base salary. Expense is
accrued in the year of the specified performance.
The Company adopted the 1994 Incentive Stock Option Plan (the "Incentive Plan") effective May 1, 1994. The Incentive Plan was amended by
the Company on February 15, 2000. The Incentive Plan makes available up to 500,000 shares of common stock for awards to key employees of
the Company and its subsidiaries in the form of stock options, stock appreciation rights, and restricted stock. The purpose of the Incentive Plan
is to promote the success of the Company and its subsidiaries by providing incentives to key employees that will promote the identification of
their personal interests with the long term financial success of the Company and with growth in shareholder value. The Incentive Plan is
designed to provide flexibility to the Company in its ability to motivate, attract, and retain the services of key employees upon whose judgment,
interest, and special effort the successful conduct of its operation is largely dependent.
In considering compensation for the Chief Executive Officer and the other executive officers, the Committee relied on compensation surveys
and an evaluation of the officers' levels of responsibility and performance. In 2000, the Committee used the following compensation surveys to
assist in developing its recommendation on compensation for 2001: the SNL Executive Compensation Review; the Sheshunoff Bank Executive
and Director Compensation Survey; and the Virginia Bankers Association's Salary Survey of Virginia Banks. The Committee believes that
these are relevant and appropriate indicators of compensation paid by the Bank's competitors. The Committee received an evaluation by the
Chief Executive Officer of the performance of the executive officers (other than the Chief Executive Officer) during 2000. The Committee
evaluated the performance of the Chief Executive Officer based on the financial performance of the Company and the Bank, achievements in
implementing the Bank's long-term strategy, and the personal observations of the Chief Executive Officer's performance by the members of the
Committee. No particular weight was given to any one aspect of the performance of the Chief Executive Officer, but his performance in 2000
was evaluated as outstanding, with the Company and the Bank achieving earnings in excess of its peer group and significant progress being
made on the Bank's long-term strategy.
Based on the salary surveys and the performance evaluations, the Committee generally set base annual salaries for the Chief Executive Officer
and the other executive officers in the median range of salaries contained in the various surveys for comparable positions.
The Committee also reviews each executive officer's performance and responsibility to assess the payment of short-term incentive
compensation. The Committee uses the compensation surveys and considers the performance of the Bank relative to its peer group, taking into
consideration profit growth, asset growth, return on equity, and return on assets. No particular weight is given to each of these elements. The
cash bonuses were given based upon the role of such officers in the growth and profitability of the Bank in 2001.
Each year, the Committee also considers the desirability of granting long-term incentive awards under the Company's Incentive Plan. The
Committee believes that grants of options focus the Bank's senior management on building profitability and shareholder value. The Committee
notes in particular its view that
9
stock option grants afford a desirable long-term compensation method because they closely ally the interest of management with shareholder
value. In fixing the grants of stock options with the senior management group, other than the Chief Executive Officer, the Committee reviewed
with the Chief Executive Officer recommended individual awards, taking into account the respective scope of responsibility and contributions
of each member of the senior management group. The award to the Chief Executive Officer was fixed separately and was based, among other
things, on the review of competitive compensation data from selected peer companies and information on his total compensation, as well as, the
Committee's perception of his past and expected future contributions to the Company's achievement of its long-term goals.
For 2000 and ensuing years, the Committee determined that additional retirement funding for select executives is appropriate and should be
provided by amending its non-qualified defined contribution plan known as the Executive's Deferred Compensation Plan (which previously
only provided for elective salary and bonus deferrals). These employer contributions are in the form of additional retirement contributions to
make up for arbitrary limitations on covered compensation imposed by the Internal Revenue Code with respect to the Bank's Profit Sharing /
401(k) Plans and to enhance retirement benefits by providing supplemental contributions from time to time on such basis as the Committee and
the Board determine.
Compensation Committee
J. P. Causey Jr. - Chairman
Barry R. Chernack
James H. Hudson III
Thomas B. Whitmore Jr.
Compensation Committee Interlocks and Insider Participation
During 2001 and up to the present time, there were transactions between the Company's banking subsidiary and certain members of the
Compensation Committee or their associates, all consisting of extensions of credit by the Bank in the ordinary course of business. Each
transaction was made on substantially the same terms, including interest rates, collateral and repayment terms, as those prevailing at the time
for comparable transactions with the general public. In the opinion of management, none of the transactions involved more than the normal risk
of collectibility or present other unfavorable features.
None of the members of the Compensation Committee has served as an officer or employee of the Company or any of its affiliates. No director
may serve as a member of the Committee if he is eligible to participate in the Incentive Plan or was at any time within one year prior to his
appointment to the Committee eligible to participate in the Incentive Plan.
Report of the Audit Committee
The Audit Committee of the Board of Directors of the Company (the "Board"), which consists entirely of directors who meet the independence
requirements of Rule 4200(a)(15) of the National Association of Securities Dealers listing standards, has furnished the following report:
The Audit Committee assists the Board in overseeing and monitoring the integrity of the Company's financial reporting process, its compliance
with legal and regulatory requirements and the quality of its internal and external audit processes. The role and responsibilities of the Audit
Committee are set forth in a written Charter adopted by the Board. The Audit Committee reviews and reassesses the Charter annually and
recommends any changes to the Board for approval.
The Audit Committee is responsible for overseeing the Company's overall financial reporting process. In fulfilling its oversight responsibilities
for the financial statements for fiscal year 2001, the Audit Committee:
10
. Reviewed and discussed the audited financial statements for the fiscal year ended December 31, 2001 with management and Yount, Hyde &
Barbour, P.C. ("YHB"), the Company's independent accountants;
. Discussed with YHB the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit; and
. Received written disclosures and the letter from YHB regarding its independence as required by Independence Standards Board Standard No.
1. The Audit Committee discussed with YHB their independence.
The Audit Committee also considered the status of pending litigation, taxation matters and other areas of oversight relating to the financial
reporting and audit process that the Audit Committee determined appropriate.
In performing all of these functions, the Audit Committee acts only in an oversight capacity. The Audit Committee does not complete its
reviews prior to the Company's public announcements of financial results. Also, in its oversight role, the Audit Committee relies on the work
and assurances of the Company's management, which has the primary responsibility for financial statements and reports, and of the
independent auditors, who, in their report, express an opinion on the conformity of the Company's annual financial statements to generally
accepted accounting principles.
Based on the Audit Committee's review of the audited financial statements and discussions with management and YHB, the Audit Committee
recommended to the Board that the audited financial statements be included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001 for filing with the Securities and Exchange Commission.
Audit Committee
Barry R. Chernack, Chairman
J. P. Causey Jr
Joshua H. Lawson
William E. O'Connell Jr.
Paul C. Robinson
Principal Accounting Fees
Audit Fees. During 2001, the Company paid its principal accounting firm, Yount, Hyde & Barbour, P.C., $55,500 in audit fees including
reviews of Form 10-Qs and Form 10-K. The Company paid Yount, Hyde & Barbour, P.C. an additional $19,100 for other services. These
primarily consist of fees for tax matters, employee benefit financial statement audits and compliance attestation services. The Audit Committee
has reviewed such services and does not believe they impair the independence of Yount Hyde & Barbour, P. C.
Financial Information System Design and Implementation Fees. The Company paid no fees to Yount, Hyde & Barbour, P.C. for services
regarding financial information system design and implementation.
11
Performance Graph
The following graph compares the yearly cumulative total shareholder return on the Company's common stock with (1) the yearly cumulative
total shareholder return on stocks included in the NASDAQ stock index and (2) the yearly cumulative total shareholder return on stocks
included in the Independent Bank Index prepared by the Carson Medlin Company. The Independent Bank Index is the compilation of the total
return to shareholders over the past five years of a group of twenty-three independent community banks located in the southeastern states of
Alabama, Florida, Georgia, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia.
There can be no assurance that the Company's stock performance will continue into the future with the same or similar trends depicted in the
graph below.
C&F FINANCIAL CORPORATION
Five Year Performance Index
[GRAPH]
1996 1997 1997 1999 2000 2001
---- ---- ---- ---- ---- ----
C&F FINANCIAL CORPORATION 100 143 211 198 174 247
INDEPENDENT BANK INDEX 100 148 154 140 139 165
NASDAQ INDEX 100 122 173 321 193 153
12
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires directors, executive officers, and 10% beneficial owners of the Company's
common stock to file reports concerning their ownership of common stock. The Company believes that its officers and directors complied with
all filing requirements under Section 16(a) of the Securities Exchange Act of 1934 during 2001.
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, subject to ratification by the shareholders, has appointed Yount, Hyde & Barbour, P.C. as independent public
accountants for the current fiscal year ending December 31, 2002.
A representative of Yount, Hyde & Barbour, P.C. will be present at the Annual Meeting and will be given the opportunity to make a statement
and respond to appropriate questions from the shareholders. Unless marked to the contrary, the shares represented by the enclosed proxy card,
if executed and returned, will be voted FOR the ratification of the appointment of Yount, Hyde & Barbour, P.C. as the independent public
accountants of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF YOUNT, HYDE
& BARBOUR, P.C. AS INDEPENDENT PUBLIC ACCOUNTANTS.
As of the date of this Proxy Statement, management of the Company has no knowledge of any matters to be presented for consideration at the
Annual Meeting other than those referred to above. If any other matters properly come before the Annual Meeting, the persons named in the
accompanying proxy intend to vote such proxy, to the extent entitled, in accordance with their best judgment.
OTHER BUSINESS
13
SHAREHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
If any shareholder intends to present a proposal to be considered for inclusion in the Company's proxy materials in connection with the 2003
Annual Meeting, the proposal must be in proper form and must be received by the Company's Secretary, at the Company's principal office in
West Point, Virginia, on or before November 15, 2002. In addition, if a shareholder intends to present a proposal for action at the 2003 Annual
Meeting, the shareholder must provide the Company with notice thereof on or before January 29, 2003, by delivering such notice to the
Company's Secretary.
By Order of the Board of Directors,
/s/ Gari B. Sullivan
Gari B. Sullivan
Secretary
West Point, Virginia
March 15, 2002
A copy of the Company's Annual Report on Form 10-K Report (including exhibits) as filed with the Securities and Exchange Commission for
the year ended December 31, 2001, will be furnished without charge to shareholders upon written request directed to the Company's Secretary
as set forth on the first page of this Proxy Statement.
14
This Proxy is solicited on behalf of the Board of Directors
C&F FINANCIAL CORPORATION
The undersigned hereby appoints Larry G. Dillon and James H. Hudson III, jointly and severally as proxies, with full power to act alone, and
with full power of substitution to represent the undersigned, and to vote all shares of the Company standing in the name of the undersigned as
of February 26, 2002, at the annual meeting of shareholders to be held Tuesday, April 16, 2002 - 3:30
p.m. at the Father van den Boogaard Center, 3510 King William Avenue, West Point, Virginia, or any adjournments thereof, on each of the
following matters. This proxy, when properly executed, will be voted in the manner directed by the undersigned shareholder. If no direction is
made, this proxy will be voted FOR each proposal and on other matters at the discretion of the proxy agents.
(Continued and to be signed on Reverse Side)
Please sign, date and mail your proxy card back as soon as possible!
Annual Meeting of Shareholders
C&F FINANCIAL CORPORATION
April 16, 2002
. Please Detach and Mail in the Envelope Provided .
------------------------------------------------------------------------------------------------------------------------------------
Please mark your
A [X] votes as in this
example.
FOR
all nominees WITHHELD
(except as marked to from all
the contrary below). nominees.
1. To elect
Three Class III FOR AGAINST ABSTAIN
directors to [_] [_] Nominees: 2. Proposal to ratify the
serve until the J.P. Causey Jr. appointment of Yount,
2000 Annual Meeting of Shareholders, or Barry R. Chernack Hyde & Barbour, P.C. [_] [_] [_]
until their successors are elected and William E. O'Connell Jr. as independent public
qualified, as instructed below. accountants of the
(Instruction: To withhold authority to Company for 2002.
vote for any nominees(s), write that
nominee(s) name on the space provided below.)
3. The transaction of any other business as may
______________________________________________ properly come before the Annual Meeting or
any adjournment thereof. Management presently
knows of no other business to be represented
at the Annual Meeting.
Meeting Attendance
------------------
I plan to attend the annual meeting on Tuesday,
April 16th, 2002 at the location printed on the
back. I will also note the number of attendees.
Will Will not
Attend [_] Attend [_]
Meeting Meeting
Number of Attendees
_____________________________
Signature____________________________________________ ___________________________________________ Dated: ________________, 2002
NOTE: Please sign your name(s) exactly as shown imprinted hereon. When shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, (trustee, or guardian, please give full title as such. If a corporation,
please sign full corporate name by President or other authorized officer. If a partnership, please sign in partnership name
by authorized person.
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End of Filing
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