2 0 0 3 F I N A N C I A L H I G H L I G H T S C&F Financial 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 twelve branch offices serving the surround- ing 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 six wholly-owned subsidiaries. C&F Mortgage Corporation origi- nates and sells residential mortgages. These mort- gage services are provided through ten offices in Virginia, three offices in Maryland and one in Delaware. Moore Loans, Inc., acquired in 2002, specializes in new and used automobile lending in the Richmond, Hampton Roads and Roanoke markets, as well as portions of eastern Tennessee. 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. Hometown Settlement Services LLC offers real estate loan settlement services. C&F FINANCIAL CORPORATION 64 Return on Average Equity 19.22% 19.62% 18.93% 21.32% 15.99% Return on Average Assets 2.35% 2.19% 2.19% 2.09% 1.76% 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 Net Income (dollars in thousands) $12,919 Earnings Per Share (assuming dilution) $3.42 $9,765 $7,989 $6,756 $5,836 $2.67 $2.23 $1.81 $1.60 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 MARYLAND MARYLAND 11 68 DELAWARE DELAWARE 83 95 Newark Newark 68 Baltimore Baltimore Ellicott City Ellicott City Crofton Crofton 50 Annapolis Annapolis 81 Fredericksburg Fredericksburg Charlottesville Charlottesville Waynesboro Waynesboro 64 95 Richmond Richmond Quinton Quinton Saluda Saluda 13 13 Lynchburg Lynchburg Roanoke Roanoke Chester Chester VIRGINIA VIRGINIA VIRGINIA 85 95 81 77 WEST POINT WEST POINT WEST POINT Williamsburg Williamsburg Newport News Newport News Hampton Hampton Hampton OFFICE LOCATIONS L E T T E R F R O M T H E P R E S I D E N T DEAR FELLOW SHAREHOLDERS: In recent years, our annual reports have proudly pointed to annual achievement records, particularly for 2001 and 2002, when net income increased 36.9% and 22.2%, respectively, and new records were established in basically every financial category for each of those years. Such banner years are difficult to improve upon. We are pleased to report that 2003 represented another year of achievement for C&F Financial Corporation. Net income was $12.9 million, an increase of $3.2 million over 2002’s record results, which resulted in a return on average assets of 2.35% (the highest ever achieved by your company) vs. 2.19% in 2002. The Company’s return on average Many times I have equity was 21.3% vs. 19.6% in 2002. This growth in net income was mentioned in this letter primarily the result of increased earnings at C&F Mortgage due to $1.1 that we are willing to make billion in loan production, a growth of 38% over 2002, and a full year’s investments that sacrifice earnings at Moore Loans. short-term earnings in order These results continue to place us in the top tier of our peer group to achieve higher results both in Virginia and the nation. Both our returns on average equity in the long-term. This (21.3%) and assets (2.35%) far exceed the peer group averages of 12.6% philosophy still holds true and 1.12%, respectively, and put us in the top 10% of all financial and we are excited about institutions nationwide. some of the investments The Company’s performance has been reflected in your investment. for the future that we are The Board of Directors increased dividends twice during 2003, from $.16 making today. per quarter to $.20, resulting in a 25% increase in our dividend rate. The Larry G. Dillon Chairman, President and Chief Executive Officer market value of your stock also increased, in part due to the stock’s inclusion in the Russell 2000, going from $25 per share at year-end 2002 to $40 per share at year-end 2003. Asset and deposit growth at the Company were also very good. Net loans increased $21.5 million at the Company, going from $328.6 million to $350.2 million. Deposits continued their strong growth in 2 C & F F I N A N C I A L C O R P O R A T I O N C&F Investment Services offers personalized service combined with a full array of investment products to meet all of your financial needs. DeAnn Rinehart C&F Investment Services 2003, going from $383.5 million to $427.6 million, an 11.5% increase. This growth extended across all of the markets we serve and is the result of the emphasis we place on giving our customers personalized service. We put much effort into the training and development of our staff members to assure that we offer our customers exceptional service. This is an on-going process and based on the positive feedback we get from customer surveys as well as their unsolicited comments, it appears that our efforts are paying off. As you review this report, you will probably notice that our numbers are not as easy to interpret as they may have been several years ago. The fact is that we have diversified our earnings over the last decade to take advantage of opportunities that add to our bottom line. Because of the investment in and growth of our different lines of business, comparisons to other financial companies our size, especially banks, have become more difficult because most other financial organizations do not share our level of diversification. At C&F Bank, we strive to deliver exceptional personalized service. We also realize convenience is important to our customers, therefore, we offer extended drive-thru hours, ATMs at most locations and 24-hour a day internet banking at www.cffc.com. Andre Jones C&F Bank We have experienced tremendous financial success the last several years; however, we realize that returns that we have been able to achieve (almost twice the average bank) are going to be more difficult to duplicate in the future. Many times I have mentioned in this letter that we are willing to make investments that sacrifice short- term earnings in order to achieve higher results in the long-term. This philosophy still holds true and we are excited about some of the investments for the future that we are making today. As an example, when we purchased Moore Loans in 2002, we had two major concerns: 3 C&F Moore Loans has created a unique relationship with our automobile dealers. Through exceptional service and enhanced technology, we are improving our efficiencies daily. Shawn Moore C&F Moore Loans management succession and utilization of technology to make the company more efficient. Over the past year, we have added several new members to the management team and we have great confidence that they will be able to carry the company forward both profitably and safely. We have also begun the process of greatly enhancing the technology at Moore Loans. Within the next several months we will have fully integrated them into the Bank’s primary data processing structures which will provide greater service capabilities as well as better disaster contingencies and backup. In addition, we are in the process of implementing new systems that will allow us to receive applications via the internet from the auto dealers that we serve. These systems will allow us to provide much faster service while at the same time increasing our efficiencies resulting in our being able to improve both our loan quality and volume. While these initiatives are going to add to our expenses, they will lead to a better and more profitable company. Another example is the Bank’s recent expansion into the Peninsula market of Virginia. We have been Another example is the Bank’s able to put together an excellent and experienced recent expansion into the management team and anticipate great success in this Peninsula market of Virginia. market. In January, we opened our first location in We have been able to put together temporary space and anticipate opening several an excellent and experienced permanent branches within the next two years. Once management team and anticipate these facilities are open, we feel we will be able to cross- great success in this market. sell banking services with the services already offered In January, we opened our first by Moore Loans and C&F Mortgage, which have location in temporary space served this region for many years. Again, this type of and anticipate opening several growth will impact short-term earnings with the permanent branches within anticipation that long-term earnings will be improved. the next two years. 4 C & F F I N A N C I A L C O R P O R A T I O N In addition to the Peninsula expansion, we also anticipate further expansion by all three of our primary business segments over the next year. Both C&F Mortgage and Moore Loans are currently attracting talented new recruits in areas not currently being served and the Bank continues to look for new opportunities in the Richmond market, such as the recently opened Mechanicsville office. These growth opportunities point to exciting years ahead for your Company. Recently, we engaged a firm to conduct a market study to determine the proper “branding” for our entire company. This study has shown that there is some confusion in the market regarding the various names we use with our various business entities. A major recommendation coming out of this study is that we better capitalize on the “C&F” name recognition throughout all of the markets we serve. The branding process will allow all lines of business to be easily recognized as part of the same corporate family by utilizing “C&F” in all of our subsidiaries’ names. There is much activity in the “C&F” family of businesses and we are excited about the future. We may not be able to attain the same level of returns in the near future as we have seen the last several years, but the long-term looks very bright for your Company. We could not have achieved these extraordinary results nor have such high expectations for the future were it not for the dedication and hard work of our exceptional staff and the insight and direction of our Boards of Directors. We thank them and also express our gratitude to you for your continued support and patronage. We can offer our clients a veritable “candy store” of mortgage products – rates and terms for just about anyone’s needs. At C&F Mortgage we want to make the path to homeownership a pleasant experience. Kathy Burley C&F Mortgage Larry G. Dillon Chairman, President, and Chief Executive Officer 2 0 0 3 A N N U A L R E P O R T 5 D I R E C T O R S A N D O F F I C E R S INDEPENDENT PUBLIC ACCOUNTANTS Yount, Hyde & Barbour, P.C. Winchester, VA CORPORATE COUNSEL Hudson & Bondurant, P.C. West Point, VA SANDSTON/VARINA ADVISORY BOARD Robert A. Canfield Attorney-at-Law Canfield, Shapiro, Baer, Heller & Johnston E. Ray Jernigan Business Owner Citizens Machine Shop S. Floyd Mays Insurance Agent/Owner Floyd Mays Insurance James M. Mehfoud Pharmacist/Business Owner Sandston Pharmacy Robert F. Nelson Jr. Professional Engineer Engineering Design Associates John G. Ragsdale II Business Owner Sandston Cleaners 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 — (Front, left to right) Barry R. Chernack, Audrey D. Holmes, Larry G. Dillon, and William E. O’Connell Jr. (Back, left to right) Thomas B. Whitmore Jr., Paul C. Robinson, Bryan E. McKernon, James H. Hudson III, J. P. Causey Jr., C. Elis Olsson, and Joshua H. Lawson C&F FINANCIAL CORPORATION/ CITIZENS AND FARMERS BANK J. P. Causey Jr.*+ Executive 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 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 William E. O’Connell Jr.*+ Chessie Professor of Business The College of William and Mary C. Elis Olsson+ Director of Operations Martinair, Inc. Paul C. Robinson*+ Owner & President Francisco, Robinson & Associates, Realtors Thomas B. Whitmore Jr.+ Retired President Whitmore Chevrolet, Oldsmobile, Pontiac Co., Inc. * C&F Financial Corporation Board Member + Citizens and Farmers Bank Board Member CITIZENS & COMMERCE BANK Frank Bell III President Citizens & Commerce Bank Jeffery W. Jones Chairman & CEO 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. Executive 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 Citizens & Commerce Bank Board — (Front, left to right) William E. O’Connell Jr., Frank Bell III, and Katherine K. Wagner (Back, left to right) Scott E. Strickler, S. Craig Lane, Jeffery W. Jones and Meade A. Spotts 6 C & F F I N A N C I A L C O R P O R A T I O N O F F I C E R S A N D L O C AT I O N S 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 & Secretary Ronald P. Espy Senior Vice President & Senior Lending Officer William B. Littreal Senior Vice President, Information Systems Laura H. Shreaves Senior Vice President & Director of Human Resources Gari B. Sullivan Senior Vice President Leslie A. Campbell Vice President, Loan Administration E. Turner Coggin Vice President, Senior Loan Underwriter Sandra S. Fryer Vice President, Special Projects Leader Jeffrey G. Hall Vice President, Information Technology Deborah R. Nichols Vice President, Quality Control Mary-Jo Rawson Vice President & Controller Evelyn Townsend Vice President, Operations Michael K. Wilson Vice President * Officers of C&F Financial Corporation WEST POINT – MAIN OFFICE 802 Main Street West Point, Virginia 23181 (804) 843-2360 Ranee Blanton-Clifford Branch Manager JAMESTOWN ROAD 1167 Jamestown Road Williamsburg, Virginia 23185 (757) 220-3293 Alec J. Nuttall Assistant Vice President & Branch Manager Deborah H. Linkenauger Vice President, Commercial Lending (757) 220-6656 LONGHILL ROAD 4780 Longhill Road Williamsburg, Virginia 23188 (757) 565-0593 Sandra C. St. Clair Assistant Vice President & Branch Manager 2 0 0 3 A N N U A L R E P O R T MECHANICSVILLE 7021 Mechanicsville Turnpike Mechanicsville, Virginia 23111 (804) 569-9776 Jesse M. Morris Assistant Vice President & Branch Manager MIDDLESEX Route 33 at Route 641 Saluda, Virginia 23149 (804) 758-3641 Elizabeth B. Faudree Assistant Vice President & Branch Manager NORGE 7534 Richmond Road Norge, Virginia 23127 (757) 564-8114 Robert J. Unangst Branch Manager PROVIDENCE FORGE 3501 N. Courthouse Road Providence Forge, Virginia 23140 (804) 966-2264 James D. W. King Vice President & Branch Manager QUINTON 2580 New Kent Highway Quinton, Virginia 23141 (804) 932-4383 Mary T. ‘‘Joy’’ Whitley Assistant Vice President & Branch Manager SANDSTON 100 East Williamsburg Road Sandston, Virginia 23150 (804) 737-7005 Katherine P. Buckner Assistant Vice President & Branch Manager VARINA Route 5 at Strath Road Richmond, Virginia 23231 (804) 795-7000 Susan M. Terry Branch Manager Tracy E. Pendleton Vice President & Area Credit Manager (804) 795-7706 WEST POINT – 14TH STREET 415 Fourteenth Street West Point, Virginia 23181 (804) 843-2708 Karen T. Richardson Assistant Vice President & Branch Manager CONSTRUCTION LENDING OFFICE C&F Center 1400 Alverser Drive Midlothian, Virginia 23113 (804) 858-8351 Terrence C. Gates Vice President, Real Estate Construction 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 C&F Center 1400 Alverser Drive Midlothian, Virginia 23113 (804) 378-0332 Jesse E. Bullard Assistant Vice President & Branch Manager RICHMOND 8001 West Broad Street Richmond, Virginia 23294 (804) 290-0402 Kevin L. Ford Assistant Vice President & Branch Manager C&F BANK PENINSULA ADMINISTRATIVE OFFICE City Center 698 Town Center Drive Newport News, Virginia 23606 (757) 596-4775 Vern E. Lockwood II President Bonnie S. Smith Vice President, Real Estate Lending NEWPORT NEWS – CITY CENTER 698 Town Center Drive Newport News, Virginia 23606 (757) 596-4775 Joycelyn Y. Spight Assistant Vice President & Branch Manager C&F TITLE AGENCY, INC. C&F Center 1400 Alverser Drive Midlothian, VA 23113 (804) 858-8399 Eileen A. Cherry Vice President & Title Insurance Underwriter C&F INVESTMENT SERVICES, INC. 417 Fourteenth Street West Point, Virginia 23181 (804) 843-4584 (800) 583-3863 Eric F. Nost President C&F Center 1400 Alverser Drive Midlothian, Virginia 23113 (804) 378-7296 (888) 435-2033 Douglas L. Hartz Assistant Vice President 1167 Jamestown Road Williamsburg, Virginia 23185 (757) 229-5629 Douglas L. Cash Jr. Branch Manager 7 O F F I C E R S A N D L O C AT I O N S C&F MORTGAGE CORPORATION ADMINISTRATIVE OFFICE C&F Center 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 Senior Vice President & Controller Tracy L. Bishop Vice President & Human Resources Manager M. Kathy Burley Vice President & Closing Manager Susan L. Driver Vice President & Underwriting Manager H. Daniel Salomonsky Vice President & Appraisal Manager RICHMOND, VIRGINIA C&F Center 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) 673-2150 Page C. Yonce Vice President & Branch Manager RICHMOND, VIRGINIA 6200 B Lakeside Avenue Richmond, Virginia 23228 (804) 673-3453 Constance Bachman-Hamilton Vice President & Branch 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 WAYNESBORO, VIRGINIA 40 Stoneridge Drive, Suite 101 Waynesboro, Virginia 22980 (540) 949-0260 William E. Hamrick Vice President & Branch Manager Philip N. Mahone Vice President & Branch Manager 8 C&F MOORE LOANS ADMINISTRATIVE OFFICE 316 E. Grace Street Richmond, VA 23219 (804) 643-8479 Abby W. Moore President C. Norwood Ashworth Senior Vice President Thomas W. Fee Vice President C. Shawn Moore Vice President COLLECTION CENTER 403 E. Grace Street Richmond, VA 23219 (804) 644-0363 H. Lee Shifflett Manager FREDERICKSBURG REGION Kara Jones Carr Area Manager NORTHERN VIRGINIA REGION Paul M. Martin Area Manager HAMPTON, VIRGINIA 2017 Cunningham Drive, Suite 208 Hampton, VA 23666 (757) 826-5660 Daniel P. Taylor Manager RICHMOND, VIRGINIA 316 E. Grace Street Richmond, VA 23219 (804) 643-8479 R.E. “Skip” Baumgardner Manager ROANOKE, VIRGINIA 5115 Bernard Drive, Suite 111 Roanoke, VA 24018 (540) 776-0938 Livia P. Woodford Manager TENNESSEE Mike G. Fraysier Business Development Manager FREDERICKSBURG, VIRGINIA 1340 Central Park Boulevard, Suite 206 Fredericksburg, Virginia 22401 (540) 548-8855 Brian F. Whetzel Branch Manager R. W. Edmondson III 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 705 Melvin Avenue, Suite 104 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 NEWARK, DELAWARE 220 Continental Drive, Suite 404 Newark, DE 19713 (302) 607-0030 Scott B. Segrist Branch Manager Robert G. Menton Branch Manager HOMETOWN SETTLEMENT SERVICES 1463 Greenbrier Place Charlottesville, VA 22901 (434) 220-1046 Donna L. West Settlement Manager C & F F I N A N C I A L C O R P O R A T I O N