C & F FINANCIAL CORP

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2022

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

For the transition period from _ to _

Commission File Number 000-23423

C&F FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


Virginia	54-1680165
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3600 La Grange Parkway Toano , VA	23168
(Address of principal executive offices)	(Zip Code)

( 804 ) 843-2360

(Registrant’s telephone number, including area code)

N/A

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1.00 par value per share	CFFI	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒	Emerging growth company	☐

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

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

At November 4, 2022, the latest practicable date for determination, 3,478,196 shares of common stock, $1.00 par value, of the registrant were outstanding.

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TABLE OF CONTENTS


PART I - Financial Information		Page

Item 1.	Financial Statements	3

	Consolidated Balance Sheets (Unaudited) – September 30, 2022 and December 31, 2021	3

	Consolidated Statements of Income (Unaudited) – Three and nine months ended September 30, 2022 and 2021	4

	Consolidated Statements of Comprehensive Income (Loss) (Unaudited) – Three and nine months ended September 30, 2022 and 2021	5

	Consolidated Statements of Equity (Unaudited) – Three and nine months ended September 30, 2022 and 2021	6

	Consolidated Statements of Cash Flows (Unaudited) – Nine months ended September 30, 2022 and 2021	8

	Notes to Consolidated Interim Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	67

Item 4.	Controls and Procedures	67

PART II - Other Information

Item 1A.	Risk Factors	67

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68

Item 6.	Exhibits	69

	Signatures	70

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Part I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENT S

C&F FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except per share amounts)


	September 30,		December 31,
	2022		2021
Assets
Cash and due from banks	$	17,180	$	19,692
Interest-bearing deposits in other banks		82,268		248,053
Total cash and cash equivalents		99,448		267,745
Securities—available for sale at fair value, amortized cost of $ 549,913 and $ 372,520 , respectively		499,564		373,073
Loans held for sale, at fair value		33,541		82,295
Loans, net of allowance for loan losses of $ 40,880 and $ 40,157 , respectively		1,526,322		1,369,903
Restricted stock, at cost		1,120		1,027
Corporate premises and equipment, net		43,830		44,799
Other real estate owned		423		835
Accrued interest receivable		7,846		6,810
Goodwill		25,191		25,191
Other intangible assets, net		1,753		1,977
Bank-owned life insurance		20,937		20,597
Net deferred tax asset		23,605		13,608
Other assets		55,485		56,661
Total assets	$	2,339,065	$	2,264,521

Liabilities
Deposits
Noninterest-bearing demand deposits	$	657,925	$	581,694
Savings and interest-bearing demand deposits		974,435		907,199
Time deposits		387,337		425,721
Total deposits		2,019,697		1,914,614
Short-term borrowings		37,633		34,735
Long-term borrowings		30,175		30,375
Trust preferred capital notes		25,378		25,351
Accrued interest payable		471		715
Other liabilities		40,271		47,707
Total liabilities		2,153,625		2,053,497

Commitments and contingent liabilities (Note 10)

Equity
Common stock ( $ 1.00 par value, 8,000,000 shares authorized, 3,491,184 and 3,545,554 shares issued and outstanding , respectively, includes 138,157 and 140,577 of unvested shares, respectively)		3,353		3,405
Additional paid-in capital		13,371		15,189
Retained earnings		208,363		193,811
Accumulated other comprehensive loss, net		( 40,320 )		( 2,087 )
Equity attributable to C&F Financial Corporation		184,767		210,318
Noncontrolling interest		673		706
Total equity		185,440		211,024
Total liabilities and equity	$	2,339,065	$	2,264,521

See notes to consolidated interim financial statements.

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C&F FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Interest income
Interest and fees on loans	$	23,159	$	22,120	$	65,566	$	66,399
Interest on interest-bearing deposits and federal funds sold		521		77		1,021		171
Interest and dividends on securities
U.S. treasury, government agencies and corporations		961		198		1,800		498
Mortgage-backed securities		854		536		2,300		1,451
Tax-exempt obligations of states and political subdivisions		409		395		1,096		1,300
Taxable obligations of states and political subdivisions		188		104		475		288
Corporate and other		234		174		691		439
Total interest income		26,326		23,604		72,949		70,546
Interest expense
Savings and interest-bearing deposits		557		346		1,415		1,049
Time deposits		722		888		2,070		3,249
Borrowings		373		462		1,110		1,365
Trust preferred capital notes		294		290		867		861
Total interest expense		1,946		1,986		5,462		6,524
Net interest income		24,380		21,618		67,487		64,022
Provision for loan losses		1,200		430		1,402		110
Net interest income after provision for loan losses		23,180		21,188		66,085		63,912
Noninterest income
Gains on sales of loans		1,870		5,660		6,763		18,665
Interchange income		1,513		1,461		4,502		4,250
Service charges on deposit accounts		1,099		992		3,216		2,639
Mortgage banking fee income		731		1,630		2,508		5,134
Wealth management services income, net		613		708		1,885		2,095
Mortgage lender services income		397		598		1,259		1,991
Other service charges and fees		403		386		1,179		1,188
Net gains on sales, maturities and calls of available for sale securities		—		3		—		41
Other (loss) income, net		( 497 )		329		( 2,791 )		2,670
Total noninterest income		6,129		11,767		18,521		38,673
Noninterest expenses
Salaries and employee benefits		12,202		13,915		34,700		45,242
Occupancy		2,182		2,231		6,507		6,781
Other		6,705		6,755		19,192		20,530
Total noninterest expenses		21,089		22,901		60,399		72,553
Income before income taxes		8,220		10,054		24,207		30,032
Income tax expense		1,675		2,227		5,144		6,950
Net income		6,545		7,827		19,063		23,082
Less net income attributable to noncontrolling interest		65		153		212		339
Net income attributable to C&F Financial Corporation	$	6,480	$	7,674	$	18,851	$	22,743
Net income per share - basic and diluted	$	1.85	$	2.16	$	5.34	$	6.27

See notes to consolidated interim financial statements.

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C&F FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Dollars in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	6,545	$	7,827	$	19,063	$	23,082
Other comprehensive loss, net of tax:
Securities available for sale		( 15,443 )		( 880 )		( 40,213 )		( 2,476 )
Defined benefit plan		( 5 )		35		( 17 )		104
Cash flow hedges		653		122		1,997		680
Other comprehensive loss, net of tax		( 14,795 )		( 723 )		( 38,233 )		( 1,692 )
Comprehensive (loss) income		( 8,250 )		7,104		( 19,170 )		21,390
Less comprehensive income attributable to noncontrolling interest		65		153		212		339
Comprehensive (loss) income attributable to C&F Financial Corporation	$	( 8,315 )	$	6,951	$	( 19,382 )	$	21,051

See notes to consolidated interim financial statements.

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C&F FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(Unaudited)

(Dollars in thousands, except per share amounts)


	Attributable to C&F Financial Corporation
							Accumulated
			Additional				Other
	Common		Paid - In		Retained		Comprehensive		Noncontrolling		Total
	Stock		Capital		Earnings		Loss, Net		Interest		Equity
Balance June 30, 2022	$	3,385	$	14,464	$	203,351	$	( 25,525 )	$	608	$	196,283
Comprehensive loss:
Net income		—		—		6,480		—		65		6,545
Other comprehensive loss		—		—		—		( 14,795 )		—		( 14,795 )
Share-based compensation		—		524		—		—		—		524
Restricted stock vested		2		( 2 )		—		—		—		—
Common stock issued		1		46		—		—		—		47
Common stock purchased		( 35 )		( 1,661 )		—		—		—		( 1,696 )
Cash dividends declared ($ 0.42 per share)		—		—		( 1,468 )		—		—		( 1,468 )
Balance September 30, 2022	$	3,353	$	13,371	$	208,363	$	( 40,320 )	$	673	$	185,440


	Attributable to C&F Financial Corporation
							Accumulated
			Additional				Other
	Common		Paid - In		Retained		Comprehensive		Noncontrolling		Total
	Stock		Capital		Earnings		Loss, Net		Interest		Equity
Balance June 30, 2021	$	3,439	$	17,643	$	183,043	$	( 2,924 )	$	597	$	201,798
Comprehensive income:
Net income		—		—		7,674		—		153		7,827
Other comprehensive loss		—		—		—		( 723 )		—		( 723 )
Share-based compensation		—		386		—		—		—		386
Restricted stock vested		1		( 1 )		—		—		—		—
Common stock issued		—		48		—		—		—		48
Common stock purchased		( 52 )		( 2,686 )		—		—		—		( 2,738 )
Cash dividends declared ($ 0.40 per share)		—		—		( 1,416 )		—		—		( 1,416 )
Balance September 30, 2021	$	3,388	$	15,390	$	189,301	$	( 3,647 )	$	750	$	205,182

See notes to consolidated interim financial statements.

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C&F FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(Unaudited)

(Dollars in thousands, except per share amounts)


	Attributable to C&F Financial Corporation
							Accumulated
			Additional				Other
	Common		Paid - In		Retained		Comprehensive		Noncontrolling		Total
	Stock		Capital		Earnings		Loss, Net		Interest		Equity
Balance December 31, 2021	$	3,405	$	15,189	$	193,811	$	( 2,087 )	$	706	$	211,024
Comprehensive loss:
Net income		—		—		18,851		—		212		19,063
Other comprehensive loss		—		—		—		( 38,233 )		—		( 38,233 )
Share-based compensation		—		1,532		—		—		—		1,532
Restricted stock vested		16		( 16 )		—		—		—		—
Common stock issued		3		134		—		—		—		137
Common stock purchased		( 71 )		( 3,468 )		—		—		—		( 3,539 )
Cash dividends declared ($ 1.22 per share)		—		—		( 4,299 )		—		—		( 4,299 )
Distributions to noncontrolling interest		—		—		—		—		( 245 )		( 245 )
Balance September 30, 2022	$	3,353	$	13,371	$	208,363	$	( 40,320 )	$	673	$	185,440


	Attributable to C&F Financial Corporation
							Accumulated
			Additional				Other
	Common		Paid - In		Retained		Comprehensive		Noncontrolling		Total
	Stock		Capital		Earnings		Loss, Net		Interest		Equity
Balance December 31, 2020	$	3,514	$	21,427	$	170,819	$	( 1,955 )	$	666	$	194,471
Comprehensive income:
Net income		—		—		22,743		—		339		23,082
Other comprehensive loss		—		—		—		( 1,692 )		—		( 1,692 )
Share-based compensation		—		1,206		—		—		—		1,206
Restricted stock vested		21		( 21 )		—		—		—		—
Common stock issued		3		131		—		—		—		134
Common stock purchased		( 150 )		( 7,353 )		—		—		—		( 7,503 )
Cash dividends declared ($ 1.18 per share)		—		—		( 4,261 )		—		—		( 4,261 )
Distributions to noncontrolling interest		—		—		—		—		( 255 )		( 255 )
Balance September 30, 2021	$	3,388	$	15,390	$	189,301	$	( 3,647 )	$	750	$	205,182

See notes to consolidated interim financial statements.

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C&F FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)


	Nine Months Ended September 30,
	2022		2021
Operating activities:
Net income	$	19,063	$	23,082
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,402		110
Accretion of certain acquisition-related discounts, net		( 1,190 )		( 2,401 )
Share-based compensation		1,532		1,206
Depreciation and amortization		3,305		3,578
Amortization of premiums and accretion of discounts on securities, net		1,960		2,629
(Reversal of) provision for indemnifications		( 858 )		52
Income from bank-owned life insurance		( 295 )		( 312 )
Pension expense		480		652
Proceeds from sales of loans held for sale		644,514		1,276,899
Origination of loans held for sale		( 587,245 )		( 1,163,845 )
Gains on sales of loans held for sale		( 6,763 )		( 18,665 )
Other gains, net		( 13 )		( 571 )
Change in other assets and liabilities:
Accrued interest receivable		( 1,036 )		978
Other assets		( 2,555 )		447
Accrued interest payable		( 244 )		( 528 )
Other liabilities		( 3,032 )		( 3,544 )
Net cash provided by operating activities		69,025		119,767
Investing activities:
Proceeds from sales, maturities and calls of securities available for sale and payments on mortgage-backed securities		43,681		85,293
Purchases of securities available for sale		( 223,034 )		( 168,040 )
Maturities of time deposits, net		494		4,692
Repayments on loans held for investment by non-bank affiliates		136,624		120,088
Purchases of loans held for investment by non-bank affiliates		( 234,828 )		( 156,677 )
Net (increase) decrease in community banking loans held for investment		( 61,516 )		3,330
Purchases of corporate premises and equipment		( 2,360 )		( 4,377 )
Proceeds from sales of other real estate owned		915		457
Changes in collateral posted with other financial institutions, net		3,880		3,960
Other investing activities, net		( 1,061 )		834
Net cash used in investing activities		( 337,205 )		( 110,440 )
Financing activities:
Net increase in demand and savings deposits		143,467		129,390
Net decrease in time deposits		( 38,384 )		( 28,269 )
Net increase in short-term borrowings		2,898		16,551
Repurchases of common stock		( 3,539 )		( 7,503 )
Cash dividends paid		( 4,299 )		( 4,261 )
Other financing activities, net		( 260 )		( 409 )
Net cash provided by financing activities		99,883		105,499
Net (decrease) increase in cash and cash equivalents		( 168,297 )		114,826
Cash and cash equivalents at beginning of period		267,745		86,669
Cash and cash equivalents at end of period	$	99,448	$	201,495
Supplemental cash flow disclosures:
Interest paid	$	5,738	$	7,295
Income taxes paid		6,623		8,429
Supplemental disclosure of noncash investing and financing activities:
Transfers from corporate premises and equipment to other real estate owned	$	423	$	—
Liabilities assumed to acquire right of use assets under operating leases		888		1,931
Transfers from loans held for sale to loans held for investment		2,971		2,911

See notes to consolidated interim financial statements.

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C&F FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE S TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

NOTE 1: Summary of Significant Accounting Policies

Principles of Consolidation: The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial reporting and with applicable quarterly reporting regulations of the Securities and Exchange Commission (the SEC). They do not include all of the information and notes required by U.S. GAAP for complete financial statements. Therefore, these consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the C&F Financial Corporation Annual Report on Form 10-K for the year ended December 31, 2021.

The unaudited consolidated financial statements include the accounts of C&F Financial Corporation (the Corporation), its direct wholly-owned subsidiary, Citizens and Farmers Bank (the Bank or C&F Bank) and indirect subsidiaries that are wholly-owned or controlled. Subsidiaries that are less than wholly owned are fully consolidated if they are controlled by the Corporation or one of its subsidiaries, and the portion of any subsidiary not owned by the Corporation is reported as noncontrolling interest. All significant intercompany accounts and transactions have been eliminated in consolidation. In addition, the Corporation owns all of the common stock of C&F Financial Statutory Trust I, C&F Financial Statutory Trust II and Central Virginia Bankshares Statutory Trust I, all of which are unconsolidated subsidiaries. The subordinated debt owed to these trusts is reported as liabilities of the Corporation. The accounting and reporting policies of the Corporation conform to U.S. GAAP and to predominant practices within the banking industry.

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

C&F Bank has five wholly-owned subsidiaries: C&F Mortgage Corporation (C&F Mortgage), C&F Finance Company (C&F Finance), C&F Wealth Management Corporation (C&F Wealth Management), C&F Insurance Services, Inc. and CVB Title Services, Inc., all incorporated under the laws of the Commonwealth of Virginia. C&F Mortgage, organized in September 1995, originates and sells residential mortgages, provides mortgage loan origination services to third-party lenders and, through its subsidiary Certified Appraisals LLC, provides ancillary mortgage loan production services for residential appraisals. C&F Mortgage owns a 51 percent interest in C&F Select LLC, which was organized in January 2019 and is also engaged in the business of originating and selling residential mortgages. C&F Finance, acquired in September 2002, is a finance company purchasing automobile, marine and recreational vehicle (RV) loans through indirect lending programs. C&F Wealth Management, organized in April 1995, is a full-service brokerage firm offering a comprehensive range of wealth management services and insurance products through third-party service providers. C&F Insurance Services, Inc. and CVB Title Services, Inc. were organized for the primary purpose of owning equity interests in an independent insurance agency and a full service title and settlement agency, respectively. Business segment data is presented in Note 9.

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

Reclassification: Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation. None of these reclassifications are considered material and did not affect net income or total equity.

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Derivative Financial Instruments: The Corporation recognizes derivative financial instruments at fair value as either an other asset or other liability in the Consolidated Balance Sheets. The Corporation’s derivative financial instruments include (1) interest rate swaps that qualify and are designated as cash flow hedges on the Corporation’s trust preferred capital notes, (2) interest rate swaps with certain qualifying commercial loan customers and dealer counterparties and (3) interest rate contracts arising from mortgage banking activities, including interest rate lock commitments (IRLCs) on mortgage loans and related forward sales of mortgage loans and mortgage backed securities. The gain or loss on the Corporation’s cash flow hedges is reported as a component of other comprehensive income, net of deferred income taxes, and reclassified into earnings in the same period(s) during which the hedged transactions affect earnings. IRLCs, forward sales contracts and interest rate swaps with loan customers and dealer counterparties are not designated as hedging instruments, and therefore changes in the fair value of these instruments are reported as noninterest income. The Corporation’s derivative financial instruments are described more fully in Note 11.

Share-Based Compensation: Share-based compensation expense, net of forfeitures, for the three and nine months ended September 30, 2022 was $ 524,000 ($ 375,000 after tax) and $ 1.53 million ($ 1.09 million after tax), respectively, for restricted stock granted during 2017 through 2022. Share-based compensation expense, net of forfeitures, for the three and nine months ended September 30, 2021 was $ 386,000 ($ 271,000 after tax) and $ 1.21 million ($ 863,000 after tax), respectively, for restricted stock granted during 2016 through 2021. As of September 30, 2022, there was $ 2.92 million of total unrecognized compensation expense related to unvested restricted stock that will be recognized over the remaining requisite service periods.

A summary of activity for restricted stock awards during the first nine months of 2022 and 2021 is presented below:


	2022
		Weighted-
		Average
		Grant Date
	Shares	Fair Value
Unvested, December 31, 2021	140,577	$	48.57
Granted	16,430		50.56
Vested	( 15,920 )		50.95
Forfeited	( 2,930 )		48.23
Unvested, September 30, 2022	138,157		48.54


	2021
		Weighted-
		Average
		Grant Date
	Shares	Fair Value
Unvested, December 31, 2020	155,945	$	48.52
Granted	20,462		44.13
Vested	( 21,195 )		44.18
Forfeited	( 5,450 )		45.89
Unvested, September 30, 2021	149,762		48.63

Recent Significant Accounting Pronouncements:

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, “ Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” as part of its project on financial instruments. Subsequently, this ASU was amended when the FASB issued ASU 2018-19, “ Codification Improvements to Topic 326, Financial Instruments – Credit Losses, ” ASU 2019-04, “ Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments ,” ASU 2019-05, “ Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief ,” ASU 2019-10, “ Financial instruments—Credit losses (Topic 326), Derivatives and hedging (Topic 815), and Leases (Topic 842)—Effective dates, ” ASU 2019-11, “ Codification Improvements to Topic 326, Financial Instruments—Credit Losses, ” ASU 2020-02, “ Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842), ” ASU 2020-03, “ Codification Improvements to Financial Instruments ” and ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326) -

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Troubled Debt Restructurings and Vintage Disclosures” (collectively, ASC 326). ASC 326 introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. It also modifies the measurement principles for modifications of loans to borrowers experiencing financial difficulty, including how the allowance for credit losses is measured for such loans. The Corporation expects to adopt the new standard effective January 1, 2023.

The amendments of ASC 326, upon adoption, will be applied on a modified retrospective basis, with the cumulative effect of adopting the new standard being recorded as an adjustment to opening retained earnings in the period of adoption. The Corporation has established a working group to prepare for and implement changes related to ASC 326 and has gathered historical loan loss data for purposes of evaluating appropriate portfolio segmentation and modeling methods under the standard. The Corporation has performed procedures to validate the historical loan loss data to ensure its suitability and reliability for purposes of developing an estimate of expected credit losses under ASC 326. The Corporation has engaged a vendor to assist in modeling expected lifetime losses under ASC 326. The Corporation expects to utilize primarily discounted cash flow methods for estimating the allowance for credit losses on loans, and is reviewing the policies and procedures to be utilized for developing that estimate. The Corporation is still evaluating the impact of the standard on its process for measuring impairment of available for sale securities. The adoption of ASC 326 will result in significant changes to the Corporation’s consolidated financial statements, which may include changes in the level of the allowance for credit losses that will be considered adequate, a reduction in total equity and regulatory capital of C&F Bank, differences in the timing of recognizing changes to the allowance for credit losses and expanded disclosures about the allowance for credit losses, charge-offs and recoveries of loans, and certain loan modifications. The Corporation has not yet determined an estimate of the effect of these changes, which will be determined based on the facts and circumstances at the time of adoption. The adoption of the standard will also result in significant changes in the Corporation’s internal control over financial reporting related to the allowance for credit losses.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This guidance provides temporary, optional expedients and exceptions to ease the potential burden in accounting for modifications of loan contracts, borrowings, hedging relationships and other transactions related to reference rate reform associated with the LIBOR transition if certain criteria are met. The amendments are effective as of March 12, 2020 through December 31, 2022 and can be adopted at an instrument level. The Corporation has utilized certain optional expedients and exceptions under Topic 848 in the case of modifications to certain loans, borrowings and cash flow hedges during 2022. These modifications have not had and are not expected to have a material impact on the consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820) – Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” This amendment clarifies the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security. It also introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The amendments are effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. Early adoption is permitted. The amendments will be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. The Corporation is currently evaluating the effect that ASU 2022-03 may have on its consolidated financial statements.

Other accounting standards that have been issued by the FASB or other standards-setting bodies are not currently expected to have a material effect on the Corporation’s financial position, results of operations or cash flows.

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NOTE 2: Securities

The Corporation’s debt securities, all of which are classified as available for sale, are summarized as follows:


	September 30, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	60,727	$	—	$	( 2,137 )	$	58,590
U.S. government agencies and corporations		143,095		—		( 12,885 )		130,210
Mortgage-backed securities		205,077		—		( 23,852 )		181,225
Obligations of states and political subdivisions		115,689		16		( 8,938 )		106,767
Corporate and other debt securities		25,325		—		( 2,553 )		22,772
	$	549,913	$	16	$	( 50,365 )	$	499,564


	December 31, 2021
			Gross	Gross
	Amortized		Unrealized	Unrealized
(Dollars in thousands)	Cost		Gains	Losses	Fair Value
U.S. government agencies and corporations	$	69,583	$ 41	$ ( 1,339 )	$	68,285
Mortgage-backed securities		189,985	1,565	( 1,201 )		190,349
Obligations of states and political subdivisions		91,304	1,642	( 280 )		92,666
Corporate and other debt securities		21,648	246	( 121 )		21,773
	$	372,520	$ 3,494	$ ( 2,941 )	$	373,073

The amortized cost and estimated fair value of securities at September 30, 2022, by the earlier of contractual maturity or expected 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.


	September 30, 2022
	Amortized
(Dollars in thousands)	Cost	Fair Value
Due in one year or less	$ 102,015	$ 95,529
Due after one year through five years	318,655	293,057
Due after five years through ten years	123,430	105,859
Due after ten years	5,813	5,119
	$ 549,913	$ 499,564

The following table presents the gross realized gains and losses on and the proceeds from the sales, maturities and calls of securities. During the three and nine months ended September 30, 2022 and during the three months ended September 30, 2021 there were no sales of securities. During the nine months ended September 30, 2021, $ 2.30 million of proceeds were related to sales of securities.


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Realized gains from sales, maturities and calls of securities:
Gross realized gains	$	—	$	3	$	—	$	41
Gross realized losses		—		—		—		—
Net realized gains	$	—	$	3	$	—	$	41
Proceeds from sales, maturities, calls and paydowns of securities	$	12,700	$	29,798	$	43,681	$	85,293

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The Corporation pledges securities primarily to secure public deposits and repurchase agreements. Securities with an aggregate amortized cost of $ 238.62 million and an aggregate fair value of $ 212.03 million were pledged at September 30, 2022. Securities with an aggregate amortized cost of $ 185.25 million and an aggregate fair value of $ 186.22 million were pledged at December 31, 2021.

Securities in an unrealized loss position at September 30, 2022, by duration of the period of the unrealized loss, are shown below.


	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Loss		Value		Loss		Value		Loss
U.S. Treasury securities	$	58,590	$	2,137	$	—	$	—	$	58,590	$	2,137
U.S. government agencies and corporations		85,022		3,345		45,188		9,540		130,210		12,885
Mortgage-backed securities		91,082		9,283		90,052		14,569		181,134		23,852
Obligations of states and political subdivisions		79,337		6,456		14,189		2,482		93,526		8,938
Corporate and other debt securities		16,789		1,979		4,967		574		21,756		2,553
Total temporarily impaired securities	$	330,820	$	23,200	$	154,396	$	27,165	$	485,216	$	50,365

There were 567 debt securities totaling $ 485.22 million of aggregate fair value considered temporarily impaired at September 30, 2022. The primary cause of the temporary impairments in the Corporation’s investments in debt securities was increases in market interest rates. The Corporation concluded that no other-than-temporary impairment existed in its securities portfolio at September 30, 2022, and no other-than-temporary impairment loss has been recognized in net income, based primarily on the fact that changes in fair value were caused primarily by fluctuations in interest rates, securities with unrealized losses had generally high credit quality, the Corporation intends to hold these investments in debt securities to maturity and it is more-likely-than-not that the Corporation will not be required to sell these investments before a recovery of its investment, and issuers have continued to make timely payments of principal and interest. Additionally, the Corporation’s mortgage-backed securities are entirely issued by either U.S. government agencies or U.S. government-sponsored enterprises. Collectively, these entities provide a guarantee, which is either explicitly or implicitly supported by the full faith and credit of the U.S. government, that investors in such mortgage-backed securities will receive timely principal and interest payments.

Securities in an unrealized loss position at December 31, 2021, by duration of the period of the unrealized loss, are shown below.


	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Loss		Value		Loss		Value		Loss
U.S. government agencies and corporations	$	46,561	$	945	$	10,604	$	394	$	57,165	$	1,339
Mortgage-backed securities		126,873		1,127		5,178		74		132,051		1,201
Obligations of states and political subdivisions		16,578		224		2,703		56		19,281		280
Corporate and other debt securities		8,925		121		—		—		8,925		121
Total temporarily impaired securities	$	198,937	$	2,417	$	18,485	$	524	$	217,422	$	2,941

The Corporation’s investment in restricted stock totaled $ 1.12 million at September 30, 2022 and $ 1.03 million at December 31, 2021 and consisted of Federal Home Loan Bank of Atlanta (FHLB) stock. Restricted stock is generally viewed as a long-term investment, which is carried at cost because there is no market for the stock other than the FHLBs. Therefore, when evaluating restricted stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing any temporary decline in value. The Corporation did not consider its investment in restricted stock to be other-than-temporarily impaired at September 30, 2022 and no impairment has been recognized.

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NOTE 3: Loans

Major classifications of loans are summarized as follows:


	September 30,	December 31,
(Dollars in thousands)	2022	2021
Real estate – residential mortgage	$ 243,222	$ 217,016
Real estate – construction 1	59,644	57,495
Commercial, financial and agricultural 2	747,487	717,730
Equity lines	43,275	41,345
Consumer	7,861	8,280
Consumer finance 3	465,713	368,194
	1,567,202	1,410,060
Less allowance for loan losses	( 40,880 )	( 40,157 )
Loans, net	$ 1,526,322	$ 1,369,903

1 Includes the Corporation’s real estate construction lending and consumer real estate lot lending.

3 Includes the Corporation’s automobile lending and marine and recreational vehicle lending.

Consumer loans included $ 205,000 and $ 207,000 of demand deposit overdrafts at September 30, 2022 and December 31, 2021, respectively.

Loans acquired in business combinations are recorded in the Consolidated Balance Sheets at fair value at the acquisition date under the acquisition method of accounting. The outstanding principal balance and the carrying amount at September 30, 2022 and December 31, 2021 of loans acquired in business combinations were as follows:


	September 30, 2022						December 31, 2021
	Acquired Loans -		Acquired Loans -				Acquired Loans -		Acquired Loans -
	Purchased		Purchased		Acquired Loans -		Purchased		Purchased		Acquired Loans -
(Dollars in thousands)	Credit Impaired		Performing		Total		Credit Impaired		Performing		Total
Outstanding principal balance	$	4,869	$	40,593	$	45,462	$	8,350	$	57,862	$	66,212
Carrying amount
Real estate – residential mortgage	$	315	$	8,898	$	9,213	$	817	$	9,997	$	10,814
Real estate – construction		—		—		—		—		1,356		1,356
Commercial, financial and agricultural 1		1,085		24,968		26,053		2,753		37,313		40,066
Equity lines		15		5,023		5,038		38		6,919		6,957
Consumer		26		893		919		47		1,213		1,260
Total acquired loans	$	1,441	$	39,782	$	41,223	$	3,655	$	56,798	$	60,453

1 Includes acquired loans classified by the Corporation as commercial real estate lending and commercial business lending.

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The following table presents a summary of the change in the accretable yield of loans classified as purchased credit impaired (PCI):


	Nine Months Ended September 30,
(Dollars in thousands)	2022	2021
Accretable yield, balance at beginning of period	$ 3,111	$ 4,048
Accretion	( 1,270 )	( 1,901 )
Reclassification of nonaccretable difference due to improvement in expected cash flows	1,603	713
Other changes, net	178	477
Accretable yield, balance at end of period	$ 3,622	$ 3,337

Loans on nonaccrual status were as follows:


	September 30,		December 31,
(Dollars in thousands)	2022		2021
Real estate – residential mortgage	$	320	$	315
Commercial, financial and agricultural:
Commercial real estate lending		1,329		—
Commercial business lending		—		2,122
Equity lines		111		104
Consumer		1		3
Consumer finance:
Automobiles		543		380
Total loans on nonaccrual status	$	2,304	$	2,924

The past due status of loans as of September 30, 2022 was as follows:


															90+ Days
	30 - 59 Days		60 - 89 Days		90+ Days		Total								Past Due and
(Dollars in thousands)	Past Due		Past Due		Past Due		Past Due		PCI		Current 1		Total Loans		Accruing
Real estate – residential mortgage	$	1,248	$	219	$	28	$	1,495	$	315	$	241,412	$	243,222	$	—
Real estate – construction:
Construction lending		—		—		—		—		—		48,911		48,911		—
Consumer lot lending		—		—		—		—		—		10,733		10,733		—
Commercial, financial and agricultural:
Commercial real estate lending		118		—		—		118		1,085		566,232		567,435		—
Land acquisition and development lending		—		—		—		—		—		35,380		35,380		—
Builder line lending		—		—		—		—		—		29,189		29,189		—
Commercial business lending		51		9		—		60		—		115,423		115,483		—
Equity lines		—		—		—		—		15		43,260		43,275		—
Consumer		18		1		—		19		26		7,816		7,861		—
Consumer finance:
Automobiles		8,438		1,759		543		10,740		—		393,968		404,708		—
Marine and recreational vehicles		—		—		—		—		—		61,005		61,005		—
Total	$	9,873	$	1,988	$	571	$	12,432	$	1,441	$	1,553,329	$	1,567,202	$	—

1 For the purposes of the table above, “Current” includes loans that are 1-29 days past due.

The table above includes nonaccrual loans that are current of $ 1.7 million and 90+ days past due of $ 571,000 .

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The past due status of loans as of December 31, 2021 was as follows:


															90+ Days
	30 - 59 Days		60 - 89 Days		90+ Days		Total								Past Due and
(Dollars in thousands)	Past Due		Past Due		Past Due		Past Due		PCI		Current 1		Total Loans		Accruing
Real estate – residential mortgage	$	963	$	325	$	429	$	1,717	$	817	$	214,482	$	217,016	$	129
Real estate – construction:
Construction lending		—		—		—		—		—		39,252		39,252		—
Consumer lot lending		—		—		—		—		—		18,243		18,243		—
Commercial, financial and agricultural:
Commercial real estate lending		—		39		—		39		2,753		525,121		527,913		—
Land acquisition and development lending		—		—		—		—		—		27,609		27,609		—
Builder line lending		—		—		—		—		—		30,499		30,499		—
Commercial business lending		8		—		—		8		—		131,701		131,709		—
Equity lines		55		31		49		135		38		41,172		41,345		49
Consumer		12		—		—		12		47		8,221		8,280		—
Consumer finance:
Automobiles		6,519		1,008		380		7,907		—		314,160		322,067		—
Marine and recreational vehicles		32		—		—		32		—		46,095		46,127		—
Total	$	7,589	$	1,403	$	858	$	9,850	$	3,655	$	1,396,555	$	1,410,060	$	178

1 For the purposes of the table above, “Current” includes loans that are 1-29 days past due.

The table above includes nonaccrual loans that are current of $ 2.24 million and 90+ days past due of $ 680,000 .

There were no loan modifications during the three and nine months ended September 30, 2022 and the three months ended September 30, 2021 that were classified as troubled debt restructurings (TDRs). There was one loan modification during the nine months ended September 30, 2021 that was classified as a TDR. This TDR was a residential mortgage with a recorded investment of $ 4,000 at the time of modification and included a modification of the loan’s payment structure.

All TDRs are considered impaired loans and are individually evaluated in the determination of the allowance for loan losses. A TDR payment default occurs when, within 12 months of the original TDR modification, either a full or partial charge-off occurs or a TDR becomes 90 days or more past due. The specific reserve associated with a TDR is reevaluated when a TDR payment default occurs. There were no TDR payment defaults during the three and nine months ended September 30, 2022 and 2021.

Impaired loans, which included TDRs of $ 2.11 million, and the related allowance at September 30, 2022 were as follows:



			Recorded		Recorded
			Investment		Investment				Average
	Unpaid		in Loans		in Loans				Balance-		Interest
	Principal		without		with		Related		Impaired		Income
(Dollars in thousands)	Balance		Specific Reserve		Specific Reserve		Allowance		Loans		Recognized
Real estate – residential mortgage	$	907	$	187	$	720	$	46	$	764	$	27
Commercial, financial and agricultural:
Commercial real estate lending		1,329		—		1,329		105		1,329		—
Equity lines		28		28		—		—		28		1
Total	$	2,264	$	215	$	2,049	$	151	$	2,121	$	28

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Impaired loans, which included TDRs of $ 2.69 million, and the related allowance at December 31, 2021 were as follows:



			Recorded		Recorded
			Investment		Investment				Average
	Unpaid		in Loans		in Loans				Balance-		Interest
	Principal		without		with		Related		Impaired		Income
(Dollars in thousands)	Balance		Specific Reserve		Specific Reserve		Allowance		Loans		Recognized
Real estate – residential mortgage	$	1,689	$	550	$	1,035	$	63	$	1,560	$	64
Commercial, financial and agricultural:
Commercial real estate lending		1,389		—		1,390		103		1,393		72
Commercial business lending		2,234		—		2,123		489		2,257		—
Equity lines		118		110		—		—		119		4
Total	$	5,430	$	660	$	4,548	$	655	$	5,329	$	140

NOTE 4: Allowance for Loan Losses

The following table presents the changes in the allowance for loan losses by major classification during the nine months ended September 30, 2022:


	Real Estate				Commercial,
	Residential		Real Estate		Financial &		Equity				Consumer
(Dollars in thousands)	Mortgage		Construction		Agricultural		Lines		Consumer		Finance		Total
Allowance for loan losses:
Balance at December 31, 2021	$	2,660	$	856	$	11,085	$	593	$	172	$	24,791	$	40,157
Provision (credited) charged to operations		( 6 )		( 62 )		( 623 )		( 60 )		83		2,070		1,402
Loans charged off		—		—		( 11 )		—		( 193 )		( 4,115 )		( 4,319 )
Recoveries of loans previously charged off		16		—		13		2		93		3,516		3,640
Balance at September 30, 2022	$	2,670	$	794	$	10,464	$	535	$	155	$	26,262	$	40,880

The following table presents the changes in the allowance for loan losses by major classification during the nine months ended September 30, 2021:


	Real Estate				Commercial,
	Residential		Real Estate		Financial &		Equity				Consumer
(Dollars in thousands)	Mortgage		Construction		Agricultural		Lines		Consumer		Finance		Total
Allowance for loan losses:
Balance at December 31, 2020	$	2,914	$	975	$	10,696	$	687	$	371	$	23,513	$	39,156
Provision (credited) charged to operations		( 99 )		( 183 )		422		( 90 )		( 160 )		220		110
Loans charged off		—		—		—		—		( 128 )		( 3,443 )		( 3,571 )
Recoveries of loans previously charged off		19		—		2		1		93		3,637		3,752
Balance at September 30, 2021	$	2,834	$	792	$	11,120	$	598	$	176	$	23,927	$	39,447

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The following table presents, as of September 30, 2022, the balance of the allowance for loan losses, the allowance by impairment methodology, total loans and loans by impairment methodology.


	Real Estate				Commercial,
	Residential		Real Estate		Financial &		Equity				Consumer
(Dollars in thousands)	Mortgage		Construction		Agricultural		Lines		Consumer		Finance		Total
Allowance balance attributable to loans:
Individually evaluated for impairment	$	46	$	—	$	105	$	—	$	—	$	—	$	151
Collectively evaluated for impairment		2,624		794		10,359		535		155		26,262		40,729
Acquired loans - PCI		—		—		—		—		—		—		—
Total allowance	$	2,670	$	794	$	10,464	$	535	$	155	$	26,262	$	40,880
Loans:
Individually evaluated for impairment	$	907	$	—	$	1,329	$	28	$	—	$	—	$	2,264
Collectively evaluated for impairment		242,000		59,644		745,073		43,232		7,835		465,713		1,563,497
Acquired loans - PCI		315		—		1,085		15		26		—		1,441
Total loans	$	243,222	$	59,644	$	747,487	$	43,275	$	7,861	$	465,713	$	1,567,202

The following table presents, as of December 31, 2021, the balance of the allowance for loan losses, the allowance by impairment methodology, total loans and loans by impairment methodology.


	Real Estate				Commercial,
	Residential		Real Estate		Financial &		Equity				Consumer
(Dollars in thousands)	Mortgage		Construction		Agricultural		Lines		Consumer		Finance		Total
Allowance balance attributable to loans:
Individually evaluated for impairment	$	63	$	—	$	592	$	—	$	—	$	—	$	655
Collectively evaluated for impairment		2,597		856		10,493		593		172		24,791		39,502
Acquired loans - PCI		—		—		—		—		—		—		—
Total allowance	$	2,660	$	856	$	11,085	$	593	$	172	$	24,791	$	40,157
Loans:
Individually evaluated for impairment	$	1,585	$	—	$	3,513	$	110	$	—	$	—	$	5,208
Collectively evaluated for impairment		214,614		57,495		711,464		41,197		8,233		368,194		1,401,197
Acquired loans - PCI		817		—		2,753		38		47		—		3,655
Total loans	$	217,016	$	57,495	$	717,730	$	41,345	$	8,280	$	368,194	$	1,410,060

Loans by credit quality indicators as of September 30, 2022 were as follows:


			Special				Substandard
(Dollars in thousands)	Pass		Mention		Substandard		Nonaccrual		Total 1
Real estate – residential mortgage	$	241,592	$	469	$	841	$	320	$	243,222
Real estate – construction:
Construction lending		48,911		—		—		—		48,911
Consumer lot lending		10,733		—		—		—		10,733
Commercial, financial and agricultural:
Commercial real estate lending		559,515		692		5,899		1,329		567,435
Land acquisition and development lending		35,380		—		—		—		35,380
Builder line lending		29,189		—		—		—		29,189
Commercial business lending		115,483		—		—		—		115,483
Equity lines		43,156		3		5		111		43,275
Consumer		7,859		1		—		1		7,861
	$	1,091,818	$	1,165	$	6,745	$	1,761	$	1,101,489

1 At September 30, 2022, the Corporation did no t have any loans classified as Doubtful or Loss.

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			Non-
(Dollars in thousands)	Performing		Performing		Total
Consumer finance:
Automobiles	$	404,165	$	543	$	404,708
Marine and recreational vehicles		61,005		—		61,005
	$	465,170	$	543	$	465,713

Loans by credit quality indicators as of December 31, 2021 were as follows:


			Special				Substandard
(Dollars in thousands)	Pass		Mention		Substandard		Nonaccrual		Total 1
Real estate – residential mortgage	$	215,432	$	664	$	605	$	315	$	217,016
Real estate – construction:
Construction lending		39,252		—		—		—		39,252
Consumer lot lending		18,243		—		—		—		18,243
Commercial, financial and agricultural:
Commercial real estate lending		519,938		1,989		5,986		—		527,913
Land acquisition and development lending		27,609		—		—		—		27,609
Builder line lending		30,499		—		—		—		30,499
Commercial business lending		129,587		—		—		2,122		131,709
Equity lines		41,013		47		181		104		41,345
Consumer		8,276		—		1		3		8,280
	$	1,029,849	$	2,700	$	6,773	$	2,544	$	1,041,866

1 At December 31, 2021, the Corporation did no t have any loans classified as Doubtful or Loss.


			Non-
(Dollars in thousands)	Performing		Performing		Total
Consumer finance:
Automobiles	$	321,687	$	380	$	322,067
Marine and recreational vehicles		46,127		—		46,127
	$	367,814	$	380	$	368,194

NOTE 5: Goodwill and Other Intangible Assets

The carrying amount of goodwill was $ 25.19 million at September 30, 2022 and December 31, 2021. There were no changes in the recorded balance of goodwill during the three and nine months ended September 30, 2022 or 2021.

The Corporation had $ 1.75 million and $ 1.98 million of other intangible assets as of September 30, 2022 and December 31, 2021, respectively. Other intangible assets were recognized in connection with the core deposits acquired from Peoples Bankshares, Incorporated in 2020 and customer relationships acquired by C&F Wealth Management in 2016. The following table summarizes the gross carrying amounts and accumulated amortization of other intangible assets:


		September 30,				December 31,
		2022				2021
		Gross				Gross
		Carrying	Accumulated			Carrying	Accumulated
(Dollars in thousands)		Amount	Amortization			Amount	Amortization
Amortizable intangible assets:
Core deposit intangibles	$	1,711	$	( 429 )	$	1,711	$	( 325 )
Other amortizable intangibles		1,405		( 934 )		1,405		( 814 )
Total	$	3,116	$	( 1,363 )	$	3,116	$	( 1,139 )

Amortization expense was $ 75,000 and $ 79,000 for the three months ended September 30, 2022 and 2021, respectively, and $ 224,000 and $ 236,000 for the nine months ended September 30, 2022 and 2021, respectively.

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NOTE 6: Equity, Other Comprehensive Income (Loss) and Earnings Per Share

Equity and Noncontrolling Interest

The Corporation’s Board of Directors authorized a program, effective December 1, 2021, to repurchase up to $ 10.0 million of the Corporation’s common stock through November 30, 2022 (the 2021 Repurchase Program). During the three and nine months ended September 30, 2022, the Corporation repurchased 34,262 shares and 66,143 shares, respectively, for an aggregate cost of $ 1.69 million and $ 3.30 million, respectively, under the 2021 Repurchase Program.

The Corporation’s previous share repurchase program, which was authorized by the Board of Directors in November 2020, expired on November 30, 2021. There were 52,619 shares and 142,874 shares repurchased under the previous share repurchase program during the three and nine months ended September 30, 2021 for an aggregate cost of $ 2.72 million and $ 7.19 million, respectively.

Additionally during the nine months ended September 30, 2022 and 2021, the Corporation withheld 4,503 shares and 7,596 shares of its common stock, respectively, from employees to satisfy tax withholding obligations upon vesting of restricted stock.

Noncontrolling interest represents an ownership interest in C&F Select LLC, a subsidiary of C&F Mortgage, held by an unrelated investor.

Accumulated Other Comprehensive Loss, Net

Changes in each component of accumulated other comprehensive loss were as follows for the three months ended September 30, 2022 and 2021:


	Securities		Defined		Cash
	Available		Benefit		Flow
(Dollars in thousands)	For Sale		Plan		Hedges		Total
Accumulated other comprehensive (loss) income at June 30, 2022	$	( 24,333 )	$	( 2,067 )	$	875	$	( 25,525 )

Net (loss) income arising during the period		( 19,547 )		—		882		( 18,665 )
Related income tax effects		4,104		—		( 228 )		3,876
		( 15,443 )		—		654		( 14,789 )

Reclassifications into net income		—		( 7 )		( 1 )		( 8 )
Related income tax effects		—		2		—		2
		—		( 5 )		( 1 )		( 6 )

Other comprehensive (loss) income, net of tax		( 15,443 )		( 5 )		653		( 14,795 )

Accumulated other comprehensive (loss) income at September 30, 2022	$	( 39,776 )	$	( 2,072 )	$	1,528	$	( 40,320 )

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	Securities		Defined		Cash
	Available		Benefit		Flow
(Dollars in thousands)	For Sale		Plan		Hedges		Total
Accumulated other comprehensive income (loss) at June 30, 2021	$	2,801	$	( 4,916 )	$	( 809 )	$	( 2,924 )

Net (loss) income arising during the period		( 1,112 )		—		166		( 946 )
Related income tax effects		234		—		( 43 )		191
		( 878 )		—		123		( 755 )

Reclassifications into net income		( 3 )		44		( 1 )		40
Related income tax effects		1		( 9 )		—		( 8 )
		( 2 )		35		( 1 )		32

Other comprehensive (loss) income, net of tax		( 880 )		35		122		( 723 )

Accumulated other comprehensive income (loss) at September 30, 2021	$	1,921	$	( 4,881 )	$	( 687 )	$	( 3,647 )

Changes in each component of accumulated other comprehensive loss were as follows for the nine months ended September 30, 2022 and 2021:


	Securities		Defined		Cash
	Available		Benefit		Flow
(Dollars in thousands)	For Sale		Plan		Hedges		Total
Accumulated other comprehensive income (loss) at December 31, 2021	$	437	$	( 2,055 )	$	( 469 )	$	( 2,087 )

Net (loss) income arising during the period		( 50,902 )		—		2,695		( 48,207 )
Related income tax effects		10,689		—		( 694 )		9,995
		( 40,213 )		—		2,001		( 38,212 )

Reclassifications into net income		—		( 22 )		( 5 )		( 27 )
Related income tax effects		—		5		1		6
		—		( 17 )		( 4 )		( 21 )

Other comprehensive (loss) income, net of tax		( 40,213 )		( 17 )		1,997		( 38,233 )

Accumulated other comprehensive (loss) income at September 30, 2022	$	( 39,776 )	$	( 2,072 )	$	1,528	$	( 40,320 )

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	Securities		Defined		Cash
	Available		Benefit		Flow
(Dollars in thousands)	For Sale		Plan		Hedges		Total
Accumulated other comprehensive income (loss) at December 31, 2020	$	4,397	$	( 4,985 )	$	( 1,367 )	$	( 1,955 )

Net (loss) income arising during the period		( 3,094 )		—		921		( 2,173 )
Related income tax effects		650		—		( 237 )		413
		( 2,444 )		—		684		( 1,760 )

Reclassifications into net income		( 41 )		131		( 5 )		85
Related income tax effects		9		( 27 )		1		( 17 )
		( 32 )		104		( 4 )		68

Other comprehensive (loss) income, net of tax		( 2,476 )		104		680		( 1,692 )

Accumulated other comprehensive income (loss) at September 30, 2021	$	1,921	$	( 4,881 )	$	( 687 )	$	( 3,647 )

The following table provides information regarding reclassifications from accumulated other comprehensive loss into net income for the three and nine months ended September 30, 2022 and 2021:

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	Three Months Ended September 30,				Nine Months Ended September 30,				Line Item In the Consolidated
(Dollars in thousands)	2022		2021		2022		2021		Statements of Income
Securities available for sale:
Reclassification of net realized gains into net income	$	—	$	3	$	—	$	41	Net gains on sales, maturities and calls of available for sale securities
Related income tax effects		—		( 1 )		—		( 9 )	Income tax expense
		—		2		—		32	Net of tax

Defined benefit plan: 1
Reclassification of recognized net actuarial losses into net income		( 10 )		( 61 )		( 29 )		( 182 )	Noninterest expenses - Other
Amortization of prior service credit into net income		17		17		51		51	Noninterest expenses - Other
Related income tax effects		( 2 )		9		( 5 )		27	Income tax expense
		5		( 35 )		17		( 104 )	Net of tax

Cash flow hedges:
Amortization of hedging gains into net income		1		1		5		5	Interest expense - Trust preferred capital notes
Related income tax effects		—		—		( 1 )		( 1 )	Income tax expense
		1		1		4		4	Net of tax

Total reclassifications into net income	$	6	$	( 32 )	$	21	$	( 68 )

1 See “Note 7: Employee Benefit Plans,” for additional information.

Earnings Per Share (EPS)

The components of the Corporation’s EPS calculations are as follows:


	Three Months Ended September 30,
(Dollars in thousands)	2022	2021
Net income attributable to C&F Financial Corporation	$ 6,480	$ 7,674
Weighted average shares outstanding — basic and diluted	3,511,326	3,550,001


	Nine Months Ended September 30,
(Dollars in thousands)	2022	2021
Net income attributable to C&F Financial Corporation	$ 18,851	$ 22,743
Weighted average shares outstanding — basic and diluted	3,531,064	3,626,083

The Corporation has applied the two-class method of computing basic and diluted EPS for each period presented because the Corporation’s unvested restricted shares outstanding contain rights to nonforfeitable dividends equal to dividends on

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the Corporation’s common stock. Accordingly, the weighted average number of shares used in the calculation of basic and diluted EPS includes both vested and unvested shares outstanding.

NOTE 7: Employee Benefit Plans

The following table summarizes the components of net periodic benefit cost for the Bank’s non-contributory cash balance pension plan.


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Components of net periodic benefit cost:
Service cost, included in salaries and employee benefits	$	459	$	493	$	1,378	$	1,478

Other components of net periodic benefit cost:
Interest cost		123		114		369		343
Expected return on plan assets		( 415 )		( 433 )		( 1,245 )		( 1,300 )
Amortization of prior service credit		( 17 )		( 17 )		( 51 )		( 51 )
Recognized net actuarial losses		10		61		29		182
Other components of net periodic benefit cost, included in other noninterest expense		( 299 )		( 275 )		( 898 )		( 826 )

Net periodic benefit cost	$	160	$	218	$	480	$	652

NOTE 8: Fair Value of Assets and Liabilities

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. U.S. GAAP requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. U.S. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three levels. These levels are:

● Level 1—Valuation is based upon quoted prices for identical instruments traded in active markets. Level 1 assets and liabilities include debt securities traded in an active exchange market, as well as U.S. Treasury securities.

● Level 2—Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

● Level 3—Valuation is determined using model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect the Corporation’s estimates of assumptions that market participants would use in pricing the respective asset or liability. Valuation techniques may include the use of pricing models, discounted cash flow models and similar techniques.

U.S. GAAP allows an entity the irrevocable option to elect fair value (the fair value option) for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. The Corporation has elected to use fair value accounting for its entire portfolio of loans held for sale (LHFS).

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following describes the valuation techniques and inputs used by the Corporation in determining the fair value of certain assets recorded at fair value on a recurring basis in the financial statements.

Securities available for sale. The Corporation primarily values its investment portfolio using Level 2 fair value measurements, but may also use Level 1 or Level 3 measurements if required by the composition of the portfolio. At September 30, 2022 and December 31, 2021, the Corporation’s entire securities portfolio was comprised of investments in debt securities classified as available for sale, which were valued using Level 2 fair value measurements. The Corporation has contracted with third party portfolio accounting service vendors for valuation of its securities portfolio. The vendors’ sources for security valuation are ICE Data Services (ICE), Refinitiv, and Bloomberg Valuation Service (BVAL). Each source provides opinions, known as evaluated prices, as to the value of individual securities based on model-based pricing techniques that are partially based on available market data, including prices for similar instruments in active markets and prices for identical assets in markets that are not active. ICE provides evaluated prices for the Corporation’s obligations of states and political subdivisions category of securities. ICE uses proprietary pricing models and pricing systems, mathematical tools and judgment to determine an evaluated price for a security based upon a hierarchy of market information regarding that security or securities with similar characteristics. Refinitiv and BVAL provide evaluated prices for the Corporation’s U.S. treasury, government agencies and corporations, mortgage-backed, and corporate categories of securities. U.S. treasury securities and fixed-rate callable securities of U.S. government agencies and corporations are individually evaluated on an option adjusted spread basis for callable issues or on a nominal spread basis incorporating the term structure of agency market spreads and the appropriate risk free benchmark curve for non-callable issues. Pass-through mortgage-backed securities (MBS) in the mortgage-backed category are grouped into aggregate categories defined by issuer program, weighted average coupon, and weighted average maturity. Each aggregate is benchmarked to relative to-be-announced mortgage-backed securities (TBA securities) or other benchmark prices. TBA securities prices are obtained from market makers and live trading systems. Collateralized mortgage obligations in the mortgage-backed category are individually evaluated based upon a hierarchy of security specific information and market data regarding that security or securities with similar characteristics. Each evaluation is determined using an option adjusted spread and prepayment model based on volatility-driven, multi-dimensional spread tables. Fixed-rate securities issued by the Small Business Association in the mortgage backed category are individually evaluated based upon a hierarchy of security specific information and market data regarding that security or securities with similar characteristics.

Other investments. The Corporation holds equity investments in funds that provide debt and equity financing to small businesses. These investments are recorded at fair value and included in other assets in the Consolidated Balance Sheets. Changes in fair value are recognized in net income. The funds are managed by investment companies, and the net asset value of each fund is reported regularly by the investment companies. At September 30, 2022 and December 31, 2021, the fair value of these investments, based on net asset value, was $ 2.16 million and $ 1.47 million, respectively. These investments, measured at net asset value, are not presented in the tables below related to fair value measurements. Changes in fair value of these investments resulted in the recognition of unrealized losses of $ 96,000 for the three months ended September 30, 2022 and unrealized losses of $ 77,000 for the nine months ended September 30, 2022, and resulted in unrealized gains of $ 88,000 and $ 135,000 for the three and nine months ended September 30, 2021, respectively.

Loans held for sale. Fair value of the Corporation’s LHFS is based on observable market prices for similar instruments traded in the secondary mortgage loan markets in which the Corporation conducts business. The Corporation’s portfolio of LHFS is classified as Level 2.

Derivative asset - IRLCs. The Corporation recognizes IRLCs at fair value. Fair value of IRLCs is based on either (i) the price of the underlying loans obtained from an investor for loans that will be delivered on a best efforts basis or (ii) the observable price for individual loans traded in the secondary market for loans that will be delivered on a mandatory basis. All of the Corporation’s IRLCs are classified as Level 2.

Derivative asset/liability – interest rate swaps on loans. The Corporation recognizes interest rate swaps at fair value. The Corporation has contracted with a third party vendor to provide valuations for these interest rate swaps using standard valuation techniques. All of the Corporation’s interest rate swaps on loans are classified as Level 2.

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Derivative asset/liability – cash flow hedges. The Corporation recognizes cash flow hedges at fair value. The fair value of the Corporation’s cash flow hedges is determined using the discounted cash flow method. All of the Corporation’s cash flow hedges are classified as Level 2.

Derivative asset/liability – forward sales of TBA securities. The Corporation recognizes forward sales of TBA securities at fair value. The fair value of forward sales of TBA securities is based on prices obtained from market makers and live trading systems for TBA securities of similar issuer programs, coupons and maturities. All of the Corporation’s forward sales of TBA securities are classified as Level 2.

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis.


	September 30, 2022
	Fair Value Measurements Classified as						Assets/Liabilities at
(Dollars in thousands)	Level 1		Level 2		Level 3		Fair Value
Assets:
Securities available for sale
U.S. Treasury securities	$	—	$	58,590	$	—	$	58,590
U.S. government agencies and corporations		—		130,210		—		130,210
Mortgage-backed securities		—		181,225		—		181,225
Obligations of states and political subdivisions		—		106,767		—		106,767
Corporate and other debt securities		—		22,772		—		22,772
Total securities available for sale		—		499,564		—		499,564
Loans held for sale		—		33,541		—		33,541
Derivatives
IRLC		—		746		—		746
Interest rate swaps on loans		—		6,762		—		6,762
Cash flow hedges		—		2,031		—		2,031
Total assets	$	—	$	542,644	$	—	$	542,644

Liabilities:
Derivatives
Interest rate swaps on loans	$	—	$	6,762	$	—	$	6,762
Total liabilities	$	—	$	6,762	$	—	$	6,762

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	December 31, 2021
	Fair Value Measurements Classified as						Assets/Liabilities at
(Dollars in thousands)	Level 1		Level 2		Level 3		Fair Value
Assets:
Securities available for sale
U.S. government agencies and corporations	$	—	$	68,285	$	—	$	68,285
Mortgage-backed securities		—		190,349		—		190,349
Obligations of states and political subdivisions		—		92,666		—		92,666
Corporate and other debt securities		—		21,773		—		21,773
Total securities available for sale		—		373,073		—		373,073
Loans held for sale		—		82,295		—		82,295
Derivatives
IRLC		—		1,523		—		1,523
Interest rate swaps on loans		—		3,467		—		3,467
Total assets	$	—	$	460,358	$	—	$	460,358

Liabilities:
Derivatives
Interest rate swaps on loans	$	—	$	3,467	$	—	$	3,467
Cash flow hedges		—		665		—		665
Forward sales of TBA securities		—		3		—		3
Total liabilities	$	—	$	4,135	$	—	$	4,135

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Corporation may be required, from time to time, to measure and recognize certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. The following describes the valuation techniques and inputs used by the Corporation in determining the fair value of certain assets recorded at fair value on a nonrecurring basis in the financial statements.

Impaired loans. The Corporation does not record loans held for investment at fair value on a recurring basis. However, there are instances when a loan is considered impaired and an allowance for loan losses is established. The Corporation measures impairment either based on the fair value of the loan using the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent, or using the present value of expected future cash flows discounted at the loan’s effective interest rate, which is not a fair value measurement. The Corporation maintains a valuation allowance to the extent that this measure of the impaired loan is less than the recorded investment in the loan. When an impaired loan is measured at fair value based solely on observable market prices or a current appraisal without further adjustment for unobservable inputs, the Corporation records the impaired loan as a nonrecurring fair value measurement classified as Level 2. However, if based on management’s review, additional discounts to observed market prices or appraisals are required or if observable inputs are not available, the Corporation records the impaired loan as a nonrecurring fair value measurement classified as Level 3.

Impaired loans that are measured based on expected future cash flows discounted at the loan’s effective interest rate rather than the market rate of interest, are not recorded at fair value and are therefore excluded from fair value disclosure requirements.

Other Real Estate Owned (OREO). Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less estimated costs to sell at the date of foreclosure. Initial fair value is based upon appraisals the Corporation obtains from independent licensed appraisers. Subsequent to foreclosure, management periodically performs valuations of the foreclosed assets based on updated appraisals, general market conditions, recent sales of similar properties, length of time the properties have been held, and our ability and intent with regard to continued ownership of the properties. The Corporation may incur additional write-downs of foreclosed assets to fair value less estimated costs to

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sell if valuations indicate a further deterioration in market conditions. As such, the Corporation records OREO as a nonrecurring fair value measurement classified as Level 3.

At September 30, 2022 and December 31, 2021 there were no impaired loans and no OREO that were measured at fair value.

Fair Value of Financial Instruments

FASB ASC 825, Financial Instruments , requires disclosure about fair value of financial instruments, including those financial assets and financial liabilities that are not required to be measured and reported at fair value on a recurring or nonrecurring basis. ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Corporation. The Corporation uses the exit price notion in calculating the fair values of financial instruments not measured at fair value on a recurring basis.

The following tables reflect the carrying amounts and estimated fair values of the Corporation’s financial instruments whether or not recognized on the Consolidated Balance Sheets at fair value.


	Carrying		Fair Value Measurements at September 30, 2022 Classified as						Total Fair
(Dollars in thousands)	Value		Level 1		Level 2		Level 3		Value
Financial assets:
Cash and short-term investments	$	100,697	$	99,448	$	698	$	—	$	100,146
Securities available for sale		499,564		—		499,564		—		499,564
Loans, net		1,526,322		—		—		1,494,271		1,494,271
Loans held for sale		33,541		—		33,541		—		33,541
Derivatives
IRLC		746		—		746		—		746
Interest rate swaps on loans		6,762		—		6,762		—		6,762
Cash flow hedges		2,031		—		2,031		—		2,031
Bank-owned life insurance		20,937		—		20,937		—		20,937
Accrued interest receivable		7,846		7,846		—		—		7,846
Financial liabilities:
Demand and savings deposits		1,632,360		1,632,360		—		—		1,632,360
Time deposits		387,337		—		385,545		—		385,545
Borrowings		86,992		—		76,609		—		76,609
Derivatives
Interest rate swaps on loans		6,762		—		6,762		—		6,762
Accrued interest payable		471		471		—		—		471

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	Carrying		Fair Value Measurements at December 31, 2021 Classified as						Total Fair
(Dollars in thousands)	Value		Level 1		Level 2		Level 3		Value
Financial assets:
Cash and short-term investments	$	269,487	$	267,745	$	1,235	$	—	$	268,980
Securities available for sale		373,073		—		373,073		—		373,073
Loans, net		1,369,903		—		—		1,379,564		1,379,564
Loans held for sale		82,295		—		82,295		—		82,295
Derivatives
IRLC		1,523		—		1,523		—		1,523
Interest rate swaps on loans		3,467		—		3,467		—		3,467
Bank-owned life insurance		20,597		—		20,597		—		20,597
Accrued interest receivable		6,810		6,810		—		—		6,810
Financial liabilities:
Demand and savings deposits		1,488,893		1,488,893		—		—		1,488,893
Time deposits		425,721		—		428,462		—		428,462
Borrowings		84,115		—		89,609		—		89,609
Derivatives
Cash flow hedges		665		—		665		—		665
Interest rate swaps on loans		3,467		—		3,467		—		3,467
Forward sales of TBA securities		3		—		3				3
Accrued interest payable		715		715		—		—		715

NOTE 9: Business Segments

The Corporation operates in a decentralized fashion in three business segments: community banking, mortgage banking and consumer finance. The community banking segment comprises C&F Bank and C&F Wealth Management. Revenues from community banking operations consist primarily of net interest income related to investments in loans and securities and outstanding deposits and borrowings, fees earned on deposit accounts and debit card interchange activity, and net revenues from offering wealth management services and insurance products through third-party service providers. Mortgage banking operating revenues consist principally of gains on sales of loans in the secondary market, mortgage banking fee income related to loan originations, fees earned by providing mortgage loan origination functions to third-party lenders, and net interest income on mortgage loans held for sale. Revenues from consumer finance consist primarily of net interest income earned on purchased retail installment sales contracts.

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The Corporation’s revenues and expenses are comprised primarily of interest expense associated with the Corporation’s trust preferred capital notes and subordinated debt, general corporate expenses, and changes in the value of the rabbi trust and deferred compensation liability related to its nonqualified deferred compensation plan. The results of the Corporation, which includes funding and operating costs that are not allocated to the business segments, are included in the column labeled “Other” in the tables below.


	Three Months Ended September 30, 2022
	Community		Mortgage		Consumer
(Dollars in thousands)	Banking		Banking		Finance		Other		Eliminations		Consolidated
Interest income	$	18,766	$	556	$	11,175	$	—	$	( 4,171 )	$	26,326
Interest expense		1,353		247		3,941		593		( 4,188 )		1,946
Net interest income		17,413		309		7,234		( 593 )		17		24,380
Gain on sales of loans		—		1,904		—		—		( 34 )		1,870
Other noninterest income		3,903		1,197		49		( 826 )		( 64 )		4,259
Net revenue		21,316		3,410		7,283		( 1,419 )		( 81 )		30,509

Provision for loan losses		—		—		1,200		—		—		1,200
Noninterest expense		14,621		3,398		3,639		( 553 )		( 16 )		21,089
Income (loss) before taxes		6,695		12		2,444		( 866 )		( 65 )		8,220
Income tax expense (benefit)		1,274		( 12 )		665		( 238 )		( 14 )		1,675
Net income (loss)	$	5,421	$	24	$	1,779	$	( 628 )	$	( 51 )	$	6,545

Other data:
Capital expenditures	$	961	$	3	$	—	$	—	$	—	$	964
Depreciation and amortization	$	923	$	57	$	102	$	—	$	—	$	1,082


	Three Months Ended September 30, 2021
	Community		Mortgage		Consumer
(Dollars in thousands)	Banking		Banking		Finance		Other		Eliminations		Consolidated
Interest income	$	15,924	$	863	$	9,388	$	—	$	( 2,571 )	$	23,604
Interest expense		1,301		240		2,424		589		( 2,568 )		1,986
Net interest income		14,623		623		6,964		( 589 )		( 3 )		21,618
Gain on sales of loans		—		5,691		—		—		( 31 )		5,660
Other noninterest income		3,927		2,266		45		( 115 )		( 16 )		6,107
Net revenue		18,550		8,580		7,009		( 704 )		( 50 )		33,385

Provision for loan losses		—		30		400		—		—		430
Noninterest expense		13,552		5,643		3,580		126		—		22,901
Income (loss) before taxes		4,998		2,907		3,029		( 830 )		( 50 )		10,054
Income tax expense (benefit)		832		799		835		( 229 )		( 10 )		2,227
Net income (loss)	$	4,166	$	2,108	$	2,194	$	( 601 )	$	( 40 )	$	7,827

Other data:
Capital expenditures	$	234	$	55	$	644	$	—	$	—	$	933
Depreciation and amortization	$	1,015	$	61	$	112	$	—	$	—	$	1,188

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	Nine Months Ended September 30, 2022
	Community		Mortgage		Consumer
(Dollars in thousands)	Banking		Banking		Finance		Other		Eliminations		Consolidated
Interest income	$	50,612	$	1,674	$	30,975	$	—	$	( 10,312 )	$	72,949
Interest expense		3,700		561		9,800		1,762		( 10,361 )		5,462
Net interest income		46,912		1,113		21,175		( 1,762 )		49		67,487
Gain on sales of loans		—		7,251		—		—		( 488 )		6,763
Other noninterest income		11,962		3,918		164		( 4,174 )		( 112 )		11,758
Net revenue		58,874		12,282		21,339		( 5,936 )		( 551 )		86,008

Provision for loan losses		( 700 )		32		2,070		—		—		1,402
Noninterest expense		42,605		10,045		10,978		( 3,186 )		( 43 )		60,399
Income (loss) before taxes		16,969		2,205		8,291		( 2,750 )		( 508 )		24,207
Income tax expense (benefit)		3,215		533		2,255		( 752 )		( 107 )		5,144
Net income (loss)	$	13,754	$	1,672	$	6,036	$	( 1,998 )	$	( 401 )	$	19,063

Other data:
Capital expenditures	$	2,232	$	65	$	17	$	—	$	—	$	2,314
Depreciation and amortization	$	2,817	$	180	$	308	$	—	$	—	$	3,305


	Nine Months Ended September 30, 2021
	Community		Mortgage		Consumer
(Dollars in thousands)	Banking		Banking		Finance		Other		Eliminations		Consolidated
Interest income	$	47,035	$	3,011	$	28,058	$	—	$	( 7,558 )	$	70,546
Interest expense		4,481		925		6,926		1,759		( 7,567 )		6,524
Net interest income		42,554		2,086		21,132		( 1,759 )		9		64,022
Gain on sales of loans		—		18,753		—		—		( 88 )		18,665
Other noninterest income		11,197		7,298		231		1,341		( 59 )		20,008
Net revenue		53,751		28,137		21,363		( 418 )		( 138 )		102,695

Provision for loan losses		( 200 )		90		220		—		—		110
Noninterest expense		40,806		18,838		10,711		2,198		—		72,553
Income (loss) before taxes		13,145		9,209		10,432		( 2,616 )		( 138 )		30,032
Income tax expense (benefit)		2,261		2,588		2,836		( 706 )		( 29 )		6,950
Net income (loss)	$	10,884	$	6,621	$	7,596	$	( 1,910 )	$	( 109 )	$	23,082

Other data:
Capital expenditures	$	584	$	118	$	3,675	$	—	$	—	$	4,377
Depreciation and amortization	$	3,115	$	193	$	270	$	—	$	—	$	3,578


	Community	Mortgage	Consumer
(Dollars in thousands)	Banking	Banking	Finance	Other		Eliminations		Consolidated
Total assets at September 30, 2022	$ 2,206,548	$ 53,496	$ 469,448	$	41,488	$	( 431,915 )	$	2,339,065
Total assets at December 31, 2021	$ 2,131,391	$ 105,547	$ 372,292	$	44,897	$	( 389,606 )	$	2,264,521

The community banking segment extends two warehouse lines of credit to the mortgage banking segment, providing a portion of the funds needed to originate mortgage loans. The community banking segment charges the mortgage banking segment interest at the daily FHLB advance rate plus a spread ranging from 50 basis points to 175 basis points. The community banking segment also provides the consumer finance segment with a portion of the funds needed to purchase loan contracts by means of variable rate notes that carry interest at 30-day term SOFR plus 211.5 basis points, with a floor of 3.5 percent, and fixed rate notes that carry interest at rates ranging from 2.3 percent to 5.1 percent. The community banking segment acquires certain residential real estate loans from the mortgage banking segment at prices similar to those paid by third-party investors. These transactions are eliminated to reach consolidated totals. In addition to unallocated

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expenses recorded by the holding company, certain overhead costs are incurred by the community banking segment and are not allocated to the mortgage banking and consumer finance segments.

NOTE 10: Commitments and Contingent Liabilities

The Corporation enters into commitments to extend credit in the normal course of business to meet the financing needs of its customers, including loan commitments and standby letters of credit. These instruments involve elements of credit and interest rate risk in excess of the amounts recorded on the Consolidated Balance Sheets. The Corporation’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 Corporation 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. Because 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 amount of loan commitments at the Bank was $ 362.76 million at September 30, 2022 and $ 305.37 million at December 31, 2021, which does not include IRLCs at the mortgage banking segment, which are discussed in Note 11.

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 $ 13.82 million at September 30, 2022 and $ 15.11 million at December 31, 2021.

The mortgage banking segment sells substantially all of the residential mortgage loans it originates to third-party investors. As is customary in the industry, the agreements with these investors require the mortgage banking segment to extend representations and warranties with respect to program compliance, borrower misrepresentation, fraud, and early payment performance. Under the agreements, the investors are entitled to make loss claims and repurchase requests of the mortgage banking segment for loans that contain covered deficiencies. The mortgage banking segment has obtained early payment default recourse waivers for a significant portion of its business. Recourse periods for early payment default for the remaining investors vary from 90 days up to one year . Recourse periods for borrower misrepresentation or fraud, or underwriting error do not have a stated time limit. The mortgage banking segment maintains an allowance for indemnifications that represents management’s estimate of losses that are probable of arising under these recourse provisions. As performance data for loans that have been sold is not made available to the mortgage banking segment by the investors, the estimate of potential losses is inherently subjective and is based on historical indemnification payments and management’s assessment of current conditions that may contribute to indemnified losses on mortgage loans that have been sold in the secondary market. For the three and nine months ended September 30, 2022, the Corporation recorded a provision for indemnifications of $ 11,000 and a reversal of provision for indemnifications of $ 858,000 , respectively, and recorded a provision for indemnifications for the three and nine months ended September 30, 2021 of $ 20,000 and $ 52,000 , respectively, which is included in “Noninterest Expenses – Other” on the Consolidated Statements of Income. No indemnification payments were made during the three and nine months ended September 30, 2022 or 2021. The allowance for indemnifications was $ 2.39 million at September 30, 2022 and $ 3.25 million at December 31, 2021.

NOTE 11: Derivative Financial Instruments

The Corporation uses derivative financial instruments primarily to manage risks to the Corporation associated with changing interest rates, and to assist customers with their risk management objectives. The Corporation designates certain interest rate swaps as hedging instruments in qualifying cash flow hedges. The changes in fair value of these designated hedging instruments is reported as a component of other comprehensive income. Derivative contracts that are not designated in a qualifying hedging relationship include customer accommodation loan swaps and contracts related to mortgage banking activities.

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Cash flow hedges . The Corporation designates interest rate swaps as cash flow hedges when they are used to manage exposure to variability in cash flows on variable rate borrowings such as the Corporation’s trust preferred capital notes. These interest rate swaps are derivative financial instruments that manage the risk of variability in cash flows by exchanging variable-rate interest payments on a notional amount of the Corporation’s borrowings for fixed-rate interest payments. Interest rate swaps designated as cash flow hedges are expected to be highly effective in offsetting the effect of changes in interest rates on the amount of variable-rate interest payments, and the Corporation assesses the effectiveness of each hedging relationship quarterly. If the Corporation determines that a cash flow hedge is no longer highly effective, future changes in the fair value of the hedging instrument would be reported in earnings. As of September 30, 2022, the Corporation has designated cash flow hedges to manage its exposure to variability in cash flows on certain variable rate borrowings for periods that end between June 2024 and June 2029.

All interest rate swaps were entered into with counterparties that met the Corporation’s credit standards and the agreements contain collateral provisions protecting the at-risk party. The Corporation believes that the credit risk inherent in these derivative contracts is not significant.

Unrealized gains or losses recorded in other comprehensive income related to cash flow hedges are reclassified into earnings in the same period(s) during which the hedged interest payments affect earnings. When a designated hedging instrument is terminated and the hedged interest payments remain probable of occurring, any remaining unrecognized gain or loss in other comprehensive income is reclassified into earnings in the period(s) during which the forecasted interest payments affect earnings. Amounts reclassified into earnings and interest receivable or payable under designated interest rate swaps are reported in interest expense. The Corporation does not expect any unrealized losses related to cash flow hedges to be reclassified into earnings in the next twelve months.

Loan swaps . The Bank also enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Bank simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and offsetting terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Corporation receives a floating rate. These back-to-back loan swaps are derivative financial instruments and are reported at fair value in “other assets” and “other liabilities” in the Consolidated Balance Sheets. Changes in the fair value of loan swaps are recorded in other noninterest income and sum to zero because of the offsetting terms of swaps with borrowers and swaps with dealer counterparties.

Mortgage banking . The mortgage banking segment enters into IRLCs with customers to originate loans for which the interest rates are determined (or “locked”) prior to funding. The mortgage banking segment is exposed to interest rate risk through fixed-rate IRLCs and mortgage loans from the time that interest rates are locked until the loans are sold in the secondary market. The mortgage banking segment mitigates this interest rate risk by either (1) entering into forward sales contracts with investors, which at times includes the community banking segment, at the time that interest rates are locked for mortgage loans to be delivered on a best efforts basis or (2) entering into forward sales contracts for TBA securities until it can enter into forward sales contracts with investors for mortgage loans to be delivered on a mandatory basis. IRLCs, forward sales of loans and forward sales of TBA securities are derivative financial instruments and are reported at fair value in other assets and other liabilities in the Consolidated Balance Sheets. Changes in the fair value of mortgage banking derivatives are recorded as a component of gains on sales of loans.

At September 30, 2022, the mortgage banking segment had $ 67.26 million of IRLCs and $ 34.93 million of unpaid principal on mortgage loans held for sale for which it managed interest rate risk using best-efforts forward sales contracts for $ 102.19 million in mortgage loans.

At December 31, 2021, the mortgage banking segment had $ 80.59 million of IRLCs and $ 72.24 million of unpaid principal on mortgage loans held for sale for which it managed interest rate risk using best-efforts forward sales contracts for $ 152.83 million in mortgage loans. Also at December 31, 2021, the mortgage banking segment had $ 2.82 million of IRLCs and $ 7.40 million of unpaid principal on mortgage loans held for sale for which it managed interest rate risk using forward sales of $ 9.25 million of TBA securities and mandatory-delivery forward sales contracts for $ 1.01 million in mortgage loans.

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The following tables summarize key elements of the Corporation’s derivative instruments other than forward sales of mortgage loans. The fair values of forward sales of mortgage loans were not material to the consolidated financial statements of the Corporation at September 30, 2022 or December 31, 2021.


	September 30, 2022
	Notional
(Dollars in thousands)	Amount		Assets		Liabilities
Cash flow hedges:
Interest rate swap contracts	$	25,000	$	2,031	$	—
Not designated as hedges:
Customer-related interest rate swap contracts:
Matched interest rate swaps with borrower		86,257		—		6,762
Matched interest rate swaps with counterparty		86,257		6,762		—
Mortgage banking contracts:
IRLCs		67,263		746		—


	December 31, 2021
	Notional
(Dollars in thousands)	Amount		Assets		Liabilities
Cash flow hedges:
Interest rate swap contracts	$	25,000	$	—	$	665
Not designated as hedges:
Customer-related interest rate swap contracts:
Matched interest rate swaps with borrower		72,352		3,303		164
Matched interest rate swaps with counterparty		72,352		164		3,303
Mortgage banking contracts:
IRLCs		83,407		1,523		—
Forward sales of TBA securities		9,250		—		3

The Corporation and the Bank are required to maintain cash collateral with dealer counterparties for interest rate swap relationships in a loss position. At September 30, 2022 and December 31, 2021, there were zero and $ 3.88 million, respectively, of cash collateral maintained with dealer counterparties and was included in “Other assets” in the Consolidated Balance Sheet.

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NOTE 12: Other Noninterest Expenses

The following table presents the significant components in the Consolidated Statements of Income line “Noninterest Expenses-Other.”


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Data processing fees	$	2,675	$	2,791	$	7,921	$	8,519
Professional fees		684		675		2,179		2,159
Marketing and advertising expenses		441		374		1,415		1,178
Mortgage banking loan processing expenses		404		697		1,405		2,458
Travel and educational expenses		322		263		1,067		620
Telecommunication expenses		350		390		1,047		1,151
Net periodic pension income		( 299 )		( 275 )		( 898 )		( 826 )
Provision for indemnifications		11		20		( 858 )		52
Other real estate (gain)/loss and expenses, net		1		2		2		( 400 )
All other noninterest expenses		2,116		1,818		5,912		5,619
Total other noninterest expenses	$	6,705	$	6,755	$	19,192	$	20,530

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion supplements and provides information about the major components of the results of operations, financial condition, liquidity and capital resources of the Corporation. This discussion and analysis should be read in conjunction with the accompanying consolidated financial statements. In addition to current and historical information, the following discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our future business, financial condition or results of operations. For a description of certain factors that may have a significant impact on our future business, financial condition or results of operations, see “Cautionary Statement About Forward-Looking Statements” at the end of this discussion and analysis.

OVERVIEW

Our primary financial goals are to maximize the Corporation’s earnings and to deploy capital in profitable growth initiatives that will enhance long-term shareholder value. We track three primary financial performance measures in order to assess the level of success in achieving these goals: (1) return on average assets (ROA), (2) return on average equity (ROE), and (3) growth in earnings. In addition to these financial performance measures, we track the performance of the Corporation’s three business segments: community banking, mortgage banking, and consumer finance. We also actively manage our capital through growth, dividends and share repurchases, while considering the need to maintain a strong capital position.

The following table presents selected financial performance highlights for the periods indicated:

TABLE 1: Financial Performance Highlights


(Dollars in thousands, except for per share data)	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Net Income (Loss):
Community Banking	$	5,421		$	4,166		$	13,754		$	10,884
Mortgage Banking		24			2,108			1,672			6,621
Consumer Finance		1,779			2,194			6,036			7,596
Other		(679)			(641)			(2,399)			(2,019)
Consolidated net income	$	6,545		$	7,827		$	19,063		$	23,082

Earnings per share - basic and diluted	$	1.85		$	2.16		$	5.34		$	6.27

Annualized return on average equity		13.20	%		15.66	%		12.63	%		15.77	%
Annualized return on average tangible common equity 1		15.35	%		18.02	%		14.67	%		18.35	%
Annualized return on average assets		1.12	%		1.44	%		1.10	%		1.43	%

1 Return on average tangible common equity (ROTCE), which excludes the effect of intangible assets, is a non-GAAP financial measure. Refer to “Use of Certain Non-GAAP Financial Measures,” below, for information about these non-GAAP financial measures, including a quantitative reconciliation to the most directly comparable financial measures calculated in accordance with U.S. GAAP.

Consolidated net income decreased $1.3 million and $4.0 million for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021 due primarily to lower net income of the mortgage banking segment, resulting from broad declines in mortgage origination volume across the industry, and the consumer finance segment, partially offset by higher net income of the community banking segment.

A discussion of the performance of our business segments is included under the heading “Business Segments” in the “Results of Operations” section of this discussion and analysis.

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Key highlights for the three and nine months ended September 30, 2022 are as follows.

● Community banking segment loans as of September 30, 2022 grew $23.0 million or 8.6 percent annualized, compared to June 30, 2022, excluding the effect of Paycheck Protection Program (PPP) loans. Average community bank segment loans increased 9.9 percent and 8.9 percent for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021, excluding the effect of PPP loans;

● Consumer finance segment loans as of September 30, 2022 grew $28.6 million or 26.2 percent annualized, compared to June 30, 2022. Average consumer finance segment loans increased 33.6 percent and 28.0 percent for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021;

● Average deposits increased 9.0 percent and 8.9 percent for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021;

● The community banking segment recorded no provision for loan losses for the third quarter of 2022 and 2021. For the first nine months of 2022 and 2021, the community banking segment recorded net reversals of provision for loan losses of $700,000 and $200,000, respectively;

● The consumer finance segment recorded provision for loan losses of $1.2 million and $400,000 for the third quarter of 2022 and 2021, respectively. For the first nine months of 2022 and 2021, the consumer finance segment recorded provision for loan losses of $2.1 million and $220,000, respectively;

● Consolidated annualized net interest margin was 4.37 percent for the third quarter of 2022, compared to 4.25 percent and 4.12 percent for the third quarter of 2021 and second quarter of 2022, respectively. The increase in the third quarter of 2022 compared to the second quarter of 2022 was due primarily to utilizing lower yielding cash to fund growth in higher yielding loans and securities, as well as higher average yields on earning assets, including the effects of rising market interest rates. Consolidated annualized net interest margin was 4.15 percent for the first nine months of 2022, compared to 4.31 percent for the first nine months of 2021;

● The community banking segment recognized no net PPP origination fees in the third quarter of 2022 and $679,000 in the first nine months of 2022, compared to $1.3 million and $3.4 million in the third quarter and first nine months of 2021, respectively. All net PPP origination fees received by C&F Bank had been recognized in income as of June 30, 2022;

● The consumer finance segment experienced net charge-offs at an annualized rate of 0.71 percent of average total loans for the third quarter of 2022, compared to net recoveries of 0.09 for the third quarter of 2021. Annualized net charge-offs as a percentage of average total loans were 0.19 percent for the first nine months of 2022, compared to net recoveries of 0.08 for the first nine months of 2021. Delinquencies remain lower than pre-pandemic levels and a strong used car market has mitigated losses on defaulted loans;

● The consumer finance segment’s average loan yield declined as a result of pursuing growth in higher quality, lower yielding loans, partially offset by rising interest rates; and

● Mortgage banking segment loan originations decreased 48.6 percent and 49.6 percent for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021, amid rising mortgage interest rates and declines in mortgage industry volume.

Capital Management and Dividends

Total equity was $185.4 million at September 30, 2022, compared to $211.0 million at December 31, 2021. Under regulatory capital standards, the Corporation’s tier 1 capital and total capital ratios at September 30, 2022 were 12.8 percent and 15.4 percent, respectively, compared to 13.0 percent and 15.8 percent, respectively, at December 31, 2021. At September 30, 2022, the book value per share of the Corporation’s common stock was $52.92, and tangible book value per share, which is a non-GAAP financial measure, was $45.20, compared to $59.32 and $51.66, respectively, at December 31, 2021.

Total consolidated equity decreased $25.6 million at September 30, 2022 compared to December 31, 2021, due primarily to unrealized losses in the market value of securities available for sale of $40.2 million (net of tax), which are recognized as a component of other comprehensive income, partially offset by net income. The Corporation’s securities available for sale are fixed income debt securities, and their decline in market value during the first nine months of 2022 was a result of increases in market interest rates. The Corporation expects to recover its investments in debt securities through scheduled

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payments of principal and interest, and unrealized losses are not expected to affect the earnings or regulatory capital of the Corporation or the Bank.

For the third quarter of 2022, the Corporation’s 42 cents per share cash dividend equated to a payout ratio of 22.7 percent of earnings per share. The Board of Directors of the Corporation continually reviews the amount of cash dividends per share and the resulting dividend payout ratio in light of changes in economic conditions, current and future capital levels and requirements and expected future earnings. In making its decision on the payment of dividends on the Corporation’s common stock, the Corporation’s Board of Directors considers operating results, financial condition, capital adequacy, regulatory requirements, shareholder returns, and other factors.

The Corporation has a share repurchase program that was authorized by the Board of Directors in November 2021 to repurchase up to $10.0 million of the Corporation’s common stock through November 30, 2022. During the third quarter of 2022, the Corporation repurchased 34,262 shares, or $1.7 million of its common stock under the Corporation’s share repurchase program.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements requires us to make estimates and assumptions. Those accounting policies with the greatest uncertainty and that require management’s most difficult, subjective or complex judgments affecting the application of these policies, and the greatest likelihood that materially different amounts would be reported under different conditions, or using different assumptions, are described below.

Allowance for Loan Losses: We establish the allowance for loan losses through charges to earnings in the form of a provision for loan losses. Loan losses are charged against the allowance when we believe that the collection of the principal is unlikely. Subsequent recoveries of losses previously charged against the allowance are credited to the allowance. The allowance represents an amount that, in our judgment, will be adequate to absorb probable losses inherent in the loan portfolio. Our judgment in determining the level of the allowance is based on evaluations of the collectability of loans while taking into consideration such factors as trends in delinquencies and charge-offs for relevant periods of time, changes in the nature and volume of the loan portfolio, current economic conditions that may affect a borrower’s ability to repay and the value of collateral, overall portfolio quality and review of specific potential losses. This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available. In evaluating the level of the allowance, we consider a range of possible assumptions and outcomes related to the various factors identified above. Under alternative assumptions that we considered in developing our estimate of an allowance that will be adequate to absorb probable losses inherent in the loan portfolio at September 30, 2022, our estimate of the allowance varied between $38 million and $42 million.

Impairment of Loans: We consider 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. We do not consider a loan impaired during a period of delay in payment if we expect the ultimate collection of all amounts due. We measure impairment on a loan-by-loan basis based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. We maintain a valuation allowance to the extent that the measure of the impaired loan is less than the recorded investment in the loan. All troubled debt restructurings (TDRs) are also considered impaired loans and are evaluated individually. A TDR occurs when we agree to significantly modify the original terms of a loan by granting a concession due to the deterioration in the financial condition of the borrower. For more information see the section titled “Asset Quality” within this Item 2.

Loans Acquired in a Business Combination: Acquired loans are classified as either (i) purchased credit-impaired (PCI) loans or (ii) purchased performing loans and are recorded at fair value on the date of acquisition.

PCI loans are those for which there is evidence of credit deterioration since origination and for which it is probable at the date of acquisition that the Corporation will not collect all contractually required principal and interest payments. When determining fair value, PCI loans are aggregated into pools of loans based on common risk characteristics as of the date of acquisition such as loan type, date of origination, and evidence of credit quality deterioration such as internal risk grades

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and past due and nonaccrual status. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the “nonaccretable difference.” Any excess of cash flows expected at acquisition over the estimated fair value is referred to as the “accretable yield” and is recognized as interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows.

On a quarterly basis, we evaluate our estimate of cash flows expected to be collected on PCI loans. Estimates of cash flows for PCI loans require significant judgment. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses resulting in an increase to the allowance for loan losses. Subsequent significant increases in cash flows may result in a reversal of post-acquisition provision for loan losses or a transfer from nonaccretable difference to accretable yield that increases interest income over the remaining life of the loan or pool(s) of loans. Disposals of loans, which may include sale of loans to third parties, receipt of payments in full or in part from the borrower or foreclosure of the collateral, result in removal of the loan from the PCI loan portfolio at its carrying amount.

PCI loans are not classified as nonperforming by the Corporation at the time they are acquired, regardless of whether they had been classified as nonperforming by the previous holder of such loans, and they will not be classified as nonperforming so long as, at quarterly re-estimation periods, we believe we will fully collect the new carrying value of the pools of loans.

The Corporation accounts for purchased performing loans using the contractual cash flows method of recognizing discount accretion based on the acquired loans’ contractual cash flows. Purchased performing loans are recorded at fair value, including a credit discount. The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans. There is no allowance for loan losses established at the acquisition date for purchased performing loans. A provision for loan losses may be required for any deterioration in these loans in future periods.

Goodwill: The Corporation's goodwill was recognized in connection with past business combinations and is reported at the community banking segment and the consumer finance segment. The Corporation reviews the carrying value of goodwill at least annually or more frequently if certain impairment indicators exist. In testing goodwill for impairment, the Corporation may first consider qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then no further testing is required and the goodwill of the reporting unit is not impaired. If the Corporation elects to bypass the qualitative assessment or if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the fair value of the reporting unit is compared with its carrying value to determine whether an impairment exists. In the last evaluation of goodwill at the community banking segment and the consumer finance segment, which was the annual evaluation in the fourth quarter of 2021, the Corporation concluded that no impairment existed based on an assessment of qualitative factors.

Income Taxes: Determining the Corporation’s effective tax rate requires judgment. The Corporation’s net deferred tax asset is determined annually based on temporary 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. In addition, there may be transactions and calculations for which the ultimate tax outcomes are uncertain and the Corporation’s tax returns are subject to audit by various tax authorities. Although we believe that estimates related to income taxes are reasonable, no assurance can be given that the final tax outcome will not be materially different than that which is reflected in the consolidated financial statements.

For further information concerning accounting policies, refer to Item 8. “Financial Statements and Supplementary Data,” under the heading “Note 1: Summary of Significant Accounting Policies” in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2021.

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RESULTS OF OPERATIONS

NET INTEREST INCOME

The following table shows the average balance sheets, the amounts of interest earned on earning assets, with related yields, and interest expense on interest-bearing liabilities, with related rates, for the three and nine months ended September 30, 2022 and 2021. Interest on tax-exempt loans and securities is presented on a taxable-equivalent basis (which converts the income on loans and investments for which no income taxes are paid to the equivalent yield as if income taxes were paid) using the federal corporate income tax rate of 21 percent that was applicable for all periods presented. Average balances of securities available for sale are included at amortized cost. Loans include loans held for sale. Loans placed on a nonaccrual status are included in the balances and are included in the computation of yields, but had no material effect.

Accretion and amortization of fair value purchase adjustments related to business combinations are included in the computation of yields on loans and investments and on the costs of deposits and borrowings. The accretion contributed approximately 9 basis points and 6 basis points to the yields on community banking segment loans and total loans, respectively, for the third quarter of 2022, and 4 basis points to both the yield on total earning assets and net interest margin for the third quarter of 2022, compared to approximately 16 basis points and 11 basis points to the yields on community banking segment loans and total loans, respectively, for the third quarter of 2021, and 8 basis points to both the yield on total earning assets and net interest margin, for the third quarter of 2021. The accretion contributed approximately 17 basis points and 11 basis points to the yields on community banking segment loans and total loans, respectively, for the first nine months of 2022, and 8 basis points to both the yield on total earning assets and net interest margin for the first nine months of 2022, compared to approximately 27 basis points and 20 basis points to the yields on community banking segment loans and total loans, respectively, for the first nine months of 2021, and 14 basis points to both the yield on total earning assets and net interest margin, for the first nine months of 2021.

The yield on loans includes, with respect to PPP loans, interest at a note rate of one percent as well as net deferred origination fees that were amortized based on the contractual maturity of the related loan or accelerated into interest income upon repayment of the loan. There was no accretion of net PPP origination fees during the three months ended September 30, 2022. Accretion of net PPP origination fees contributed approximately 49 basis points and 34 basis points to the yields on community banking segment loans and total loans, respectively, for the third quarter of 2021, and 25 basis points to both the yield on interest earning assets and net interest margin for the third quarter of 2021. Accretion of net PPP origination fees contributed approximately 9 basis points and 6 basis points to the yields on community banking segment loans and total loans, respectively, for the first nine months of 2022, and 4 basis points to both the yield on interest earning assets and net interest margin for the first nine months of 2022, compared to approximately 43 basis points and 30 basis points to the yields on community banking segment loans and total loans, respectively, for the first nine months of 2021, and 23 basis points to both the yield on interest earning assets and net interest margin for the first nine months of 2021.

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TABLE 2: Average Balances, Income and Expense, Yields and Rates


	Three Months Ended September 30,
	2022						2021
	Average		Income/		Yield/		Average		Income/		Yield/
(Dollars in thousands)	Balance		Expense		Rate		Balance		Expense		Rate
Assets
Securities:
Taxable	$	461,327	$	2,237	1.94	%	$	280,018	$	1,012	1.45	%
Tax-exempt		77,574		519	2.68			77,695		501	2.58
Total securities		538,901		2,756	2.05			357,713		1,513	1.69
Loans:
Community banking segment		1,082,947		11,470	4.20			1,033,291		11,895	4.57
Mortgage banking segment		44,216		556	4.99			113,436		864	3.02
Consumer finance segment		453,401		11,174	9.78			339,283		9,386	10.98
Total loans		1,580,564		23,200	5.82			1,486,010		22,145	5.91
Interest-bearing deposits in other banks		105,683		521	1.96			184,603		77	0.17
Total earning assets		2,225,148		26,477	4.72			2,028,326		23,735	4.64
Allowance for loan losses		(40,976)						(39,215)
Total non-earning assets		152,284						189,631
Total assets	$	2,336,456					$	2,178,742

Liabilities and Equity
Interest-bearing deposits:
Interest-bearing demand deposits	$	346,527		267	0.31		$	295,761		118	0.16
Money market deposit accounts		405,872		258	0.25			319,172		198	0.25
Savings accounts		236,481		32	0.05			214,881		30	0.06
Certificates of deposit		387,527		722	0.74			444,826		888	0.79
Total interest-bearing deposits		1,376,407		1,279	0.37			1,274,640		1,234	0.38
Borrowings:
Repurchase agreements		36,913		43	0.47			29,597		35	0.47
Other borrowings		55,585		624	4.49			55,815		717	5.14
Total borrowings		92,498		667	2.88			85,412		752	3.52
Total interest-bearing liabilities		1,468,905		1,946	0.53			1,360,052		1,986	0.58
Noninterest-bearing demand deposits		631,519						568,275
Other liabilities		37,669						50,461
Total liabilities		2,138,093						1,978,788
Equity		198,363						199,954
Total liabilities and equity	$	2,336,456					$	2,178,742
Net interest income			$	24,531					$	21,749
Interest rate spread					4.19	%					4.06	%
Interest expense to average earning assets					0.35	%					0.39	%
Net interest margin					4.37	%					4.25	%

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	Nine Months Ended September 30,
	2022						2021
	Average		Income/		Yield/		Average		Income/		Yield/
(Dollars in thousands)	Balance		Expense		Rate		Balance		Expense		Rate
Assets
Securities:
Taxable	$	399,660	$	5,266	1.76	%	$	246,391	$	2,676	1.45	%
Tax-exempt		72,641		1,389	2.55			82,551		1,646	2.66
Total securities		472,301		6,655	1.88			328,942		4,322	1.75
Loans:
Community banking segment		1,054,842		33,027	4.19			1,039,242		35,400	4.55
Mortgage banking segment		53,792		1,674	4.16			141,837		3,012	2.84
Consumer finance segment		417,604		30,975	9.92			326,333		28,057	11.50
Total loans		1,526,238		65,676	5.75			1,507,412		66,469	5.90
Interest-bearing deposits in other banks		191,436		1,021	0.71			158,635		171	0.14
Total earning assets		2,189,975		73,352	4.48			1,994,989		70,962	4.75
Allowance for loan losses		(40,685)						(39,432)
Total non-earning assets		165,930						190,993
Total assets	$	2,315,220					$	2,146,550

Liabilities and Equity
Interest-bearing deposits:
Interest-bearing demand deposits	$	348,992		595	0.23		$	301,374		369	0.16
Money market deposit accounts		390,857		729	0.25			312,265		594	0.25
Savings accounts		230,011		91	0.05			204,829		86	0.06
Certificates of deposit		396,079		2,070	0.70			454,171		3,249	0.96
Total interest-bearing deposits		1,365,939		3,485	0.34			1,272,639		4,298	0.45
Borrowings:
Repurchase agreements		35,403		121	0.46			24,425		86	0.47
Other borrowings		55,646		1,856	4.45			55,803		2,140	5.11
Total borrowings		91,049		1,977	2.90			80,228		2,226	3.70
Total interest-bearing liabilities		1,456,988		5,462	0.50			1,352,867		6,524	0.64
Noninterest-bearing demand deposits		616,032						547,118
Other liabilities		41,019						51,409
Total liabilities		2,114,039						1,951,394
Equity		201,181						195,156
Total liabilities and equity	$	2,315,220					$	2,146,550
Net interest income			$	67,890					$	64,438
Interest rate spread					3.98	%					4.11	%
Interest expense to average earning assets					0.33	%					0.44	%
Net interest margin					4.15	%					4.31	%

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 table shows the direct causes of the period-to-period changes in the components of net interest income on a taxable-equivalent basis. The Corporation calculates the rate and volume variances using a formula prescribed by the SEC. Rate/volume variances, the third element in the calculation, are not shown separately in the table, but are allocated to the rate and volume variances in proportion to the absolute dollar amounts of each.

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TABLE 3: Rate-Volume Recap


	Three Months Ended September 30, 2022 from 2021
	Increase (Decrease)				Total
	Due to				Increase
(Dollars in thousands)	Rate		Volume		(Decrease)
Interest income:
Loans:
Community banking segment	$	(985)	$	560	$	(425)
Mortgage banking segment		385		(693)		(308)
Consumer finance segment		(1,110)		2,898		1,788
Securities:
Taxable		420		805		1,225
Tax-exempt		19		(1)		18
Interest-bearing deposits in other banks		492		(48)		444
Total interest income		(779)		3,521		2,742
Interest expense:
Interest-bearing deposits:
Interest-bearing demand deposits		126		23		149
Money market deposit accounts		—		60		60
Savings accounts		2		—		2
Certificates of deposit		(55)		(111)		(166)
Total interest-bearing deposits		73		(28)		45
Borrowings:
Repurchase agreements		—		8		8
Other borrowings		(90)		(3)		(93)
Total interest expense		(17)		(23)		(40)
Change in net interest income	$	(762)	$	3,544	$	2,782


	Nine Months Ended September 30, 2022 from 2021
	Increase (Decrease)				Total
	Due to				Increase
(Dollars in thousands)	Rate		Volume		(Decrease)
Interest income:
Loans:
Community banking segment	$	(2,887)	$	514	$	(2,373)
Mortgage banking segment		1,028		(2,366)		(1,338)
Consumer finance segment		(4,211)		7,129		2,918
Securities:
Taxable		663		1,927		2,590
Tax-exempt		(66)		(191)		(257)
Interest-bearing deposits in other banks		809		41		850
Total interest income		(4,664)		7,054		2,390
Interest expense:
Interest-bearing deposits:
Interest-bearing demand deposits		166		60		226
Money market deposit accounts		—		135		135
Savings accounts		(10)		15		5
Certificates of deposit		(801)		(378)		(1,179)
Total interest-bearing deposits		(645)		(168)		(813)
Borrowings:
Repurchase agreements		(2)		37		35
Other borrowings		(278)		(6)		(284)
Total interest expense		(925)		(137)		(1,062)
Change in net interest income	$	(3,739)	$	7,191	$	3,452

Net interest income, on a taxable-equivalent basis, for the third quarter of 2022 increased to $24.5 million, compared to $21.7 million for the third quarter of 2021, due primarily to higher average balances of earning assets and an increase in net interest margin. Net interest income, on a taxable-equivalent basis, for the first nine months of 2022 increased to $67.9 million, compared to $64.4 million for the first nine months of 2021, due primarily to higher average balance of earnings assets, partially offset by a decrease in net interest margin. Average earning assets increased $196.8 million and $195.0 million for the third quarter of 2022 and first nine months of 2022, respectively, compared to the same periods of 2021. Annualized net interest margin increased 12 basis points to 4.37 percent for the third quarter of 2022, relative to the third

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quarter of 2021, due primarily to the effect of rising interest rates on yields of earning assets. Annualized net interest margin decreased 16 basis points to 4.15 percent for the first nine months of 2022, relative to the first nine months of 2021, due primarily to lower average yields on consumer finance segment loans and lower accretion of net PPP origination fees and discounts on purchased loans included in loan yields at the community banking segment, partially offset by lower average costs of deposits and borrowings and rising yields on cash and securities. The yield on interest-earning assets increased by 8 basis points and decreased by 27 basis points, respectively, for the third quarter and first nine months of 2022, compared to the same periods in 2021. The cost of interest-bearing liabilities decreased by 5 basis points and 14 basis points, respectively, for the third quarter and first nine months of 2022, compared to the same periods of 2021.

Average loans, which includes both loans held for investment and loans held for sale, increased $94.6 million to $1.58 billion for the third quarter of 2022 and increased $18.8 million to $1.53 billion for the first nine months of 2022, compared to the same periods in 2021. Average loans at the community banking segment increased $49.7 million, or 4.8 percent, for the third quarter of 2022, and increased $15.6 million, or 1.5 percent, for the first nine months of 2022 compared to the same periods in 2021. Excluding the impact of PPP loans, average loans at the community banking segment increased $97.2 million, or 9.9 percent, for the third quarter of 2022, and increased $85.4 million, or 8.9 percent, for the first nine months of 2022 compared to the same periods in 2021. The increase in average loans at the community banking segment excluding PPP loans for the third quarter and first nine months of 2022 compared to the same periods in 2021 resulted primarily from growth in the commercial real estate and construction segments of the loan portfolio. Average loans at the consumer finance segment increased $114.1 million, or 33.6 percent, for the third quarter of 2022, and increased $91.3 million, or 28.0 percent, for the first nine months of 2022 compared to the same periods in 2021 due to higher average balances of automobile loans and marine and RV loans. Average loans at the mortgage banking segment, which consist primarily of loans held for sale, decreased $69.2 million, or 61.0 percent, for the third quarter of 2022, and decreased $88.0 million, or 62.1 percent for the first nine months of 2022, compared to the same periods in 2021, due primarily to lower mortgage loan production volume.

The community banking segment average loan yield decreased 37 basis points to 4.20 percent for the third quarter of 2022 and decreased 36 basis points to 4.19 percent for the first nine months of 2022, compared to the same periods in 2021 primarily as a result of lower recognition of net PPP origination fees and lower interest income on PCI loans, partially offset by the effects of rising interest rates. PPP loans earn interest at a note rate of one percent as well as net origination fees that were amortized over the contractual term of the related loan or accelerated into interest income upon repayment of the loan. There were no net PPP origination fees recognized in the third quarter of 2022 and $679,000 recognized in the first nine months of 2022, compared to net PPP origination fees recognized in the third quarter and first nine months of 2021 of $1.3 million and $3.4 million, respectively. As of June 30, 2022, all net PPP origination fees received by C&F Bank had been recognized in income, totaling $6.3 million since the inception of the PPP in the second quarter of 2020. The recognition of interest income on PCI loans, which were acquired in connection with past mergers and acquisitions, is based on management’s expectation of future payments of principal and interest, which are inherently uncertain. Earlier than expected repayments of certain PCI loans resulted in the recognition of additional interest income during the third quarters and first nine months of 2022 and 2021. Interest income recognized on PCI loans was $251,000 and $364,000 for the third quarters of 2022 and 2021, respectively, and $1.3 million and $1.9 million for the first nine months of 2022 and 2021, respectively. The consumer finance segment average loan yield decreased 120 basis points to 9.78 percent for the third quarter of 2022 and decreased 158 basis points to 9.92 percent for the first nine months of 2022, compared to the same periods in 2021, due to the consumer finance segment continuing to pursue loan contracts of higher credit quality and lower average yields. This impact on consumer finance segment yields is tapering off as the portfolio turns over and new loans are brought on at higher current interest rates, as evidenced by a decrease of 4 basis points in average loan yield for the third quarter of 2022 from 9.82 basis points in the second quarter of 2022. The mortgage banking segment average loan yield increased 197 basis points to 4.99 percent for the third quarter of 2022, and increased 132 basis points to 4.16 percent for the first nine months of 2022, compared to the same periods in 2021, due to higher mortgage interest rates.

Average securities available for sale increased $181.2 million and $143.4 million for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021, due primarily to higher purchases of mortgage-backed securities and securities issued by the U.S. Treasury and government agencies and corporations . The average yield on the securities portfolio on a taxable-equivalent basis increased 36 basis points to 2.05 percent for the third quarter of 2022 compared to the third quarter of 2021 and increased 13 basis points to 1.88 percent for the first nine months of 2022

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compared to the first nine months of 2021, due primarily to rising interest rates during 2022, which allowed for purchases of securities at higher yields.

Average interest-bearing deposits in other banks, consisting primarily of excess cash reserves maintained at the Federal Reserve Bank, decreased $78.9 million for the third quarter of 2022 due primarily to utilizing lower yielding cash to fund growth in higher yielding loans and securities. Average interest-bearing deposits in other banks increased $32.8 million for the first nine months of 2022, compared to the same period in 2021 due primarily to excess liquidity resulting from deposit growth and a decrease in loans held for sale, partially offset by growth in securities available for sale and loans held for investment. The average yield on interest-bearing deposits in other banks increased 179 basis points for the third quarter of 2022, and increased 57 basis points for the first nine months of 2022 compared to the same periods in 2021 due to rising interest rates during 2022. The Federal Reserve Bank increased the interest rate on excess cash reserve balances from 0.10 percent at December 31, 2020 to 0.15 percent by the end of 2021 and to 3.15 percent by the end of the third quarter of 2022.

Average money market, savings and interest-bearing demand deposits increased $159.1 million and $151.4 million for the third quarter and first nine months of 2022, respectively, and average time deposits decreased $57.3 million and $58.1 million for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021, due primarily to growth in consumer and business checking, money market, and savings deposits and a shift to non-time deposits. Average noninterest-bearing demand deposits increased $63.2 million and $68.9 million for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021. The average cost of interest-bearing deposits decreased 1 basis point and 11 basis points for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021, due primarily to lower rates on time deposits, including maturities of time deposits that were opened when rates were higher, and a shift in composition toward non-time deposits. The average cost of interest-bearing deposits increased 5 basis points for the third quarter of 2022 compared to the second quarter of 2022 due to the effects of rising interest rates.

Average borrowings increased $7.1 million and $10.8 million for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021 due primarily to increases in balances of repurchase agreements with commercial deposit customers. The average cost of borrowings decreased 64 basis points and 80 basis points for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021 due primarily to the termination of a revolving bank line of credit during the fourth quarter of 2021 and growth in repurchase agreements, which have a lower average cost than long-term borrowings.

The Corporation believes that rising interest rates will continue to have a positive effect on yields of cash reserves, variable rate loans, new loan originations and purchases of securities available for sale at the community banking segment as well as mortgage loans held for sale. Although the Corporation expects the cost of deposits to continue to increase in the near term, the Corporation believes that net interest margin will continue to expand as higher average yields on earning assets will outweigh the increasing cost of deposits. The extent to which rising interest rates affect net interest margin will depend on a number of factors, including (1) the Corporation’s ability to continue to grow loans at the community banking segment and consumer finance segment and competition for loans, (2) the continued availability of funding through low-cost deposits and the Corporation’s ability to compete for deposits, (3) average yields on consumer finance loans, which, although tapering off, may decline as a result of the higher credit quality of loan contracts purchased by the consumer finance segment, (4) possible lower accretion of discounts on purchased loans, which is included in yields on loans, and (5) further declines in mortgage loan production and therefore lower average loans held for sale at the mortgage banking segment. The Corporation can give no assurance as to the ultimate impact of rising interest rates or as to when or for how long the Corporation may experience an increase in net interest margin.

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Noninterest Income

TABLE 4: Noninterest Income


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Gains on sales of loans	$	1,870	$	5,660	$	6,763	$	18,665
Interchange income		1,513		1,461		4,502		4,250
Service charges on deposit accounts		1,099		992		3,216		2,639
Mortgage banking fee income		731		1,630		2,508		5,134
Wealth management services income, net		613		708		1,885		2,095
Mortgage lender services income		397		598		1,259		1,991
Other service charges and fees		403		386		1,179		1,188
Net gains on sales, maturities and calls of available for sale securities		—		3		—		41
Other (loss) income, net		(497)		329		(2,791)		2,670
Total noninterest income	$	6,129	$	11,767	$	18,521	$	38,673

Total noninterest income decreased $5.6 million, or 47.9 percent, for the third quarter of 2022 and decreased $20.2 million, or 52.1 percent, for the first nine months of 2022, compared to the same periods in 2021. The decreases were due primarily to (1) lower volume of mortgage loan production and mortgage lender services, which resulted in lower gains on sales of loans and mortgage banking fee income, (2) lower margins on sales of mortgage loans, and (3) fluctuations in unrealized gains and losses related to the Corporation’s nonqualified deferred compensation plan, included in other (loss) income, net, partially offset by higher income from service charges on deposit accounts and debit card interchange fees.

The Corporation recognized unrealized losses related to its nonqualified deferred compensation plan of $833,000 and $4.2 million for the third quarter and first nine months of 2022, respectively, compared to unrealized losses of $122,000 and unrealized gains of $1.3 million for the same periods in 2021, respectively. Unrealized gains and losses in the Corporation’s nonqualified deferred compensation plan are offset by changes in deferred compensation, recorded in salaries and employee benefits expense.

Noninterest Expense

TABLE 5: Noninterest Expense


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Salaries and employee benefits	$	12,202	$	13,915	$	34,700	$	45,242
Occupancy expense		2,182		2,231		6,507		6,781
Other expenses:
Data processing		2,675		2,791		7,921		8,519
Professional fees		684		675		2,179		2,159
Mortgage banking loan processing expenses		404		697		1,405		2,458
Other real estate loss/(gain) and expense, net		1		2		2		(400)
Provision for indemnifications		11		20		(858)		52
Other expenses		2,930		2,570		8,543		7,742
Total other expenses		6,705		6,755		19,192		20,530
Total noninterest expense	$	21,089	$	22,901	$	60,399	$	72,553

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Total noninterest expenses decreased $1.8 million, or 7.9 percent, in the third quarter of 2022 and decreased $12.2 million, or 16.8 percent, in the first nine months of 2022 compared to the same periods in 2021, due primarily to (1) lower expenses tied to mortgage loan production volume reported in salaries and employee benefits, mortgage banking loan processing expenses and data processing, (2) decreases in salaries and employee benefits related to deferred compensation, and (3) a reversal of provision for indemnifications during the first nine months of 2022 compared to provision recorded in the first nine months of 2021, partially offset by net gains on other real estate during the first nine months of 2021 related primarily to the sale of one property in the second quarter of 2021.

Changes in deferred compensation liabilities decreased salaries and employee benefits expense by $833,000 and $4.2 million in the third quarter and first nine months of 2022, respectively, and decreased salaries and employee benefits expense by $161,000 and increased salaries and employee benefits expense by $1.3 million in the third quarter and first nine months of 2021, respectively, and were offset in both periods by unrealized losses and gains, respectively, recorded in noninterest income.

Income Taxes

The Corporation’s consolidated effective income tax rate was 21.3 percent and 23.1 percent for the first nine months of 2022 and 2021, respectively. The Corporation’s consolidated effective tax rate for the first nine months of 2022 was lower compared to the same period in 2021 primarily as a result of a lower share of income at the mortgage banking segment, which is subject to state income taxes.

Business Segments

The Corporation operates in a decentralized manner in three business segments: community banking, mortgage banking and consumer finance. An overview of the financial results for each of the Corporation’s business segments is presented below.

Community Banking: The community banking segment comprises C&F Bank and C&F Wealth Management. The following table presents the community banking segment operating results for the periods indicated.

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TABLE 6: Community Banking Segment Operating Results


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Interest income	$	18,766	$	15,924	$	50,612	$	47,035
Interest expense		1,353		1,301		3,700		4,481
Net interest income		17,413		14,623		46,912		42,554
Provision for loan losses		—		—		(700)		(200)
Net interest income after provision for loan losses		17,413		14,623		47,612		42,754
Noninterest income:
Interchange income		1,513		1,461		4,502		4,250
Service charges on deposit accounts		1,114		992		3,259		2,639
Investment services income		613		708		1,885		2,095
Other income, net		663		766		2,316		2,213
Total noninterest income		3,903		3,927		11,962		11,197
Noninterest expense:
Salaries and employee benefits		8,600		8,083		25,252		24,640
Occupancy expense		1,694		1,707		5,025		5,124
Data processing		2,026		2,001		5,907		6,012
Other real estate loss/(gain) and expense, net		1		2		2		(400)
Other expenses		2,300		1,759		6,419		5,430
Total noninterest expenses		14,621		13,552		42,605		40,806
Income before income taxes		6,695		4,998		16,969		13,145
Income tax expense		1,274		832		3,215		2,261
Net income	$	5,421	$	4,166	$	13,754	$	10,884

Community banking segment net income increased $1.3 million and $2.9 million for the third quarter and first nine months of 2022 compared to the same periods in 2021. The increases in community banking segment net income were due primarily to (1) higher net interest income, (2) lower provision for loan losses for the first nine months of 2022 compared to the same period in 2021, and (3) higher income from service charges on deposit accounts and debit card interchange activity, partially offset by higher salaries and employee benefits and other expenses.

Net interest income for the community banking segment increased by $2.8 million to $17.4 million for the third quarter of 2022 and increased $4.4 million to $46.9 million for the first nine months of 2022, respectively, compared to the same periods in 2021. These increases were due primarily to (1) higher average balances of interest-earning assets, including loans and securities, (2) the effects of rising interest rates during 2022 on asset yields, and (3) lower average cost of time deposits and a shift in balances from time deposits toward lower-cost savings, money market and demand deposits, partially offset by lower recognition of net PPP origination fees and lower interest income on PCI loans. There were no net PPP origination fees recognized in the third quarter of 2022 and $679,000 recognized during the first nine months of 2022, compared to $1.3 million and $3.4 million, respectively, for the same periods in 2021. All net PPP origination fees received by C&F Bank had been recognized in income as of June 30, 2022, totaling $6.3 million since the inception of the PPP in the second quarter of 2020. Interest income recognized on PCI loans was $251,000 and $1.3 million for the third quarter and first nine months of 2022, respectively, and $364,000 and $1.9 million for the third quarter and first nine months of 2021, respectively.

The community banking segment recorded no provision for loan losses for the third quarter of 2022 and recorded a net reversal of provision for loan losses of $700,000 for the first nine months of 2022, compared to no provision for loan losses for the third quarter of 2021 and a net reversal of provision for loan losses of $200,000 for the first nine months of 2021. The reversal of provision for loan losses in the first nine months of 2022 was due primarily to the resolution of certain

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impaired loans, which resulted in no losses being realized, and continued strong credit quality of the loan portfolio, partially offset by provision related to loan growth. Noninterest income increased for the first nine months of 2022 compared to the same period in 2021 as a result of higher service charges on deposit accounts, higher debit card interchange income and higher swap fee income, included in other income, net. Noninterest expenses increased during the same periods, driven primarily by higher salaries and employee benefits expense including adding new talent to the commercial lending team, net gains on other real estate in 2021 related primarily to the sale of one property in the second quarter of 2021, and higher marketing and travel expense as typical programs and community and educational events return to normalized activity levels after reduced activity due to COVID-19 during 2021.

Mortgage Banking: The following table presents the mortgage banking operating results for the periods indicated.

TABLE 7: Mortgage Banking Segment Operating Results


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Interest income	$	556	$	863	$	1,674	$	3,011
Interest expense		247		240		561		925
Net interest income		309		623		1,113		2,086
Provision for loan losses		—		30		32		90
Net interest income after provision for loan losses		309		593		1,081		1,996
Noninterest income:
Gains of sales of loans		1,904		5,691		7,251		18,753
Mortgage banking fee income		780		1,646		2,577		5,193
Mortgage lender services fee income		397		598		1,259		1,991
Other income		20		22		82		114
Total noninterest income		3,101		7,957		11,169		26,051
Noninterest expense:
Salaries and employee benefits		1,998		3,595		6,238		12,134
Occupancy expense		322		356		982		1,132
Data processing		272		453		886		1,524
Other expenses		806		1,239		1,939		4,048
Total noninterest expenses		3,398		5,643		10,045		18,838
Income before income taxes		12		2,907		2,205		9,209
Income tax (benefit) expense		(12)		799		533		2,588
Net income	$	24	$	2,108	$	1,672	$	6,621

The mortgage banking segment reported net income of $24,000 and $1.7 million for the third quarter and first nine months of 2022, respectively, compared to $2.1 million and $6.6 million, respectively, for the same periods in 2021. The decrease in net income of the mortgage banking segment for the third quarter and first nine months of 2022 compared to the same periods in 2021 was due primarily to (1) lower volume of mortgage loan originations and mortgage lender services, (2) lower margins on sales of mortgage loans and (3) lower net interest income as a result of lower average balances of loans held for sale, partially offset by lower expenses tied to mortgage loan origination volume such as salaries and benefits, loan processing and data processing and lower provision for indemnification reserves, which is included in other expenses, during the third quarter and first nine months of 2022.

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The following table presents mortgage loan originations and mortgage loans sold for the periods indicated.

TABLE 8: Mortgage Loan Originations


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Mortgage loan originations:
Purchases	$	165,997	$	263,207	$	493,206	$	723,574
Refinancings		18,285		95,044		92,052		438,488
Total mortgage loan originations 1	$	184,282	$	358,251	$	585,258	$	1,162,062

Lock-adjusted originations 2	$	147,585	$	352,442	$	571,051	$	1,117,633

1 Total mortgage loan originations does not include mortgage lender services.

2 Lock-adjusted originations includes an estimate of the effect of changes in the volume of mortgage loan applications in process that have not closed, net of volume not expected to close.

Mortgage loan originations for the mortgage banking segment decreased 48.6 percent for the third quarter of 2022 and decreased 49.6 percent for the first nine months of 2022 compared to the same periods in 2021. Gains on sales of loans, while driven in part by mortgage loan originations, also includes the effects of changes in locked loan commitments, which reflect the volume of mortgage loan applications that are in process and have not closed. Lock-adjusted originations for the mortgage banking segment decreased 58.1 percent for the third quarter of 2022 and decreased 48.9 percent for the first nine months of 2022 compared to the same periods in 2021. Locked loan commitments were $67.3 million at September 30, 2022, compared to $83.4 million at December 31, 2021 and $148.1 million at September 30, 2021. Following the elevated volume levels in the mortgage industry during 2020 and 2021 that accompanied historically low mortgage interest rates and a highly active residential real estate market, the rapid rise in mortgage interest rates, combined with limited inventory of homes for sale, has led to a substantial decline in mortgage originations across the industry.

Mortgage lender services fee income is derived from providing mortgage origination functions to third-party mortgage lenders for a fee. Mortgage lender services volume decreased for the third quarter and first nine months of 2022 compared to the same periods in 2021 as a result of lower mortgage industry volume.

The mortgage banking segment recorded a provision for indemnification losses of $11,000 for the third quarter 2022 and a reversal of provision for indemnification losses of $858,000 for the first nine months of 2022, compared to provision for indemnification losses of $20,000 and $52,000, respectively, for the same periods in 2021. The release of indemnification reserves in the first nine months of 2022 was due primarily to improvement in the mortgage banking segment’s assessment of borrower payment performance and other factors affecting expected losses on mortgage loans sold in the secondary market. The mortgage banking segment increased reserves for indemnification losses during 2020 based on widespread forbearance on mortgage loans and economic uncertainty related to the COVID-19 pandemic. To date, the mortgage banking segment has not made any payments for indemnification losses since the onset of the COVID-19 pandemic, and management believes that the indemnification reserve is sufficient to absorb losses related to loans that have been sold in the secondary market.

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Consumer Finance: The following table presents the consumer finance operating results for the periods indicated.

TABLE 9: Consumer Finance Segment Operating Results


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Interest income	$	11,175	$	9,388	$	30,975	$	28,058
Interest expense		3,941		2,424		9,800		6,926
Net interest income		7,234		6,964		21,175		21,132
Provision for loan losses		1,200		400		2,070		220
Net interest income after provision for loan losses		6,034		6,564		19,105		20,912

Noninterest income		49		45		164		231
Noninterest expense:
Salaries and employee benefits		2,234		2,184		6,800		6,630
Occupancy expense		168		168		501		525
Data processing		371		332		1,104		967
Other expenses		866		896		2,573		2,589
Total noninterest expenses		3,639		3,580		10,978		10,711
Income before income taxes		2,444		3,029		8,291		10,432
Income tax expense		665		835		2,255		2,836
Net income	$	1,779	$	2,194	$	6,036	$	7,596

The decrease in consumer finance segment net income for the third quarter and first nine months of 2022, as compared to the same periods in 2021, was due primarily to margin compression resulting from lower average yields on automobile loans and increased borrowing costs on variable rate loans from the community banking segment and higher provision for loan losses, partially offset by loan growth. Net interest margin decreased due to lower average yields on loans, as a result of the consumer finance segment’s pursuing growth in higher quality, lower yielding loans. Average loans outstanding increased $114.1 million, or 33.6%, for the third quarter of 2022 and increased $91.3 million, or 28.0%, for the first nine months of 2022, compared to the same periods in 2021.

Provision for loan losses increased as a result of significant loan growth in 2022, partially offset by a release of reserves related to strong loan performance. Despite some weakening in 2022, the consumer finance segment has experienced loan performance since 2020 that has been consistently stronger than periods prior to the onset of the COVID-19 pandemic, resulting in part from the consumer finance segment continuing to purchase higher quality loans, and in part from government stimulus measures in response to the pandemic that benefitted borrowers. Additionally, a strong used car market has continued to mitigate the losses realized upon repossession and sale of automobiles. If loan performance deteriorates, resulting in further elevated delinquencies or net charge-offs, or if values of used vehicles decline, provision for loan losses may increase in future periods.

ASSET QUALITY

The allowance for loan losses represents an amount that, in our judgment, will be adequate to absorb probable losses inherent in the loan portfolio. The provision for loan losses increases the allowance, and loans charged off, net of recoveries, reduce the allowance. The following table presents the Corporation’s loan loss experience for the periods indicated:

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TABLE 10: Allowance for Loan Losses


	Real Estate						Commercial,
	Residential			Real Estate			Financial &			Equity						Consumer
(Dollars in thousands)	Mortgage			Construction			Agricultural			Lines			Consumer 1			Finance			Total
For the three months ended September 30, 2022:
Balance at beginning of period	$	2,553		$	972		$	10,422		$	524		$	180		$	25,868		$	40,519
Provision charged to operations		112			(178)			34			11			21			1,200			1,200
Loans charged off		—			—			—			—			(77)			(1,793)			(1,870)
Recoveries of loans previously charged off		5			—			8			—			31			987			1,031
Balance at end of period	$	2,670		$	794		$	10,464		$	535		$	155		$	26,262		$	40,880

Average loans	$	235,002		$	78,980		$	730,653		$	41,512		$	8,108		$	453,401		$	1,547,656
Ratio of annualized net (recoveries) charge-offs to average loans		(0.01)	%		—	%		(0.00)	%		—	%		2.27	%		0.71	%		0.22	%

For the three months ended September 30, 2021:
Balance at beginning of period	$	2,814		$	793		$	11,028		$	600		$	267		$	23,449		$	38,951
Provision charged to operations		14			(1)			91			(2)			(72)			400			430
Loans charged off		—			—			—			—			(47)			(1,001)			(1,048)
Recoveries of loans previously charged off		6			—			1			—			28			1,079			1,114
Balance at end of period	$	2,834		$	792		$	11,120		$	598		$	176		$	23,927		$	39,447

Average loans	$	214,735		$	59,258		$	718,510		$	42,902		$	8,212		$	339,283		$	1,382,900
Ratio of annualized net (recoveries) charge-offs to average loans		(0.01)	%		—	%		(0.00)	%		—	%		0.93	%		(0.09)	%		(0.02)	%


	Real Estate						Commercial,
	Residential			Real Estate			Financial &			Equity						Consumer
(Dollars in thousands)	Mortgage			Construction			Agricultural			Lines			Consumer 1			Finance			Total
For the nine months ended September 30, 2022:
Balance at beginning of period	$	2,660		$	856		$	11,085		$	593		$	172		$	24,791		$	40,157
Provision charged to operations		(6)			(62)			(623)			(60)			83			2,070			1,402
Loans charged off		—			—			(11)			—			(193)			(4,115)			(4,319)
Recoveries of loans previously charged off		16			—			13			2			93			3,516			3,640
Balance at end of period	$	2,670		$	794		$	10,464		$	535		$	155		$	26,262		$	40,880

Average loans	$	222,919		$	80,934		$	712,285		$	40,899		$	8,112		$	417,604		$	1,482,753
Ratio of annualized net (recoveries) charge-offs to average loans		(0.01)	%		—	%		(0.00)	%		(0.01)	%		1.64	%		0.19	%		0.06	%

For the nine months ended September 30, 2021:
Balance at beginning of period	$	2,914		$	975		$	10,696		$	687		$	371		$	23,513		$	39,156
Provision charged to operations		(99)			(183)			422			(90)			(160)			220			110
Loans charged off		—			—			—			—			(128)			(3,443)			(3,571)
Recoveries of loans previously charged off		19			—			2			1			93			3,637			3,752
Balance at end of period	$	2,834		$	792		$	11,120		$	598		$	176		$	23,927		$	39,447

Average loans	$	215,654		$	58,466		$	721,320		$	44,938		$	9,152		$	326,333		$	1,375,863
Ratio of annualized net (recoveries) charge-offs to average loans		(0.01)	%		—	%		(0.00)	%		(0.00)	%		0.51	%		(0.08)	%		(0.02)	%

1 Consumer loans includes provision, charge-offs and recoveries related to demand deposit overdrafts.

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For further information regarding the adequacy of our allowance for loan losses, refer to “Table 14: Nonperforming Assets” and the accompanying disclosure below.

The allocation of the allowance for loan losses and the ratio of corresponding outstanding loan balances to total loans are as follows as of the dates indicated:

TABLE 11: Allocation of Allowance for Loan Losses


	September 30,			December 31,
(Dollars in thousands)	2022			2021
Allocation of allowance for loan losses:
Real estate—residential mortgage	$	2,670		$	2,660
Real estate—construction 1		794			856
Commercial, financial and agricultural 2		10,464			11,085
Equity lines		535			593
Consumer		155			172
Consumer finance		26,262			24,791
Total allowance for loan losses	$	40,880		$	40,157
Ratio of loans to total period-end loans:
Real estate—residential mortgage		15	%		15	%
Real estate—construction 1		4			4
Commercial, financial and agricultural 2		48			51
Equity lines		3			3
Consumer		1			1
Consumer finance		29			26
		100	%		100	%

1 Includes the Corporation’s real estate construction lending and consumer real estate lot lending.

2 Includes the Corporation’s commercial real estate lending, land acquisition and development lending, builder line lending and commercial business lending.

Loans by credit quality indicators are presented in Table 12 below. The characteristics of these loan ratings are as follows:

● Pass rated loans are to persons or business entities with an acceptable financial condition, appropriate collateral margins, appropriate cash flow to service the existing loan, and an appropriate leverage ratio. The borrower has paid all obligations as agreed and it is expected that this type of payment history will continue. When necessary, acceptable personal guarantors support the loan.

● Special mention loans have a specific identified weakness in the borrower’s operations and in the borrower’s ability to generate positive cash flow on a sustained basis. The borrower’s recent payment history may be characterized by late payments. The Corporation’s risk exposure is mitigated by collateral supporting the loan. The collateral is considered to be well-margined, well maintained, accessible and readily marketable.

● Substandard loans are considered to have specific and well-defined weaknesses that jeopardize the viability of the Corporation’s credit extension. The payment history for the loan has been inconsistent and the expected or projected primary repayment source may be inadequate to service the loan. The estimated net liquidation value of the collateral pledged and/or ability of the personal guarantor(s) to pay the loan may not adequately protect the Corporation. There is a distinct possibility that the Corporation will sustain some loss if the deficiencies associated with the loan are not corrected in the near term. A substandard loan would not automatically meet the Corporation’s definition of impaired unless the loan is significantly past due and the borrower’s performance and financial condition provide evidence that it is probable that the Corporation will be unable to collect all amounts due.

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● Substandard nonaccrual loans have the same characteristics as substandard loans; however, they have a nonaccrual classification because it is probable that the Corporation will not be able to collect all amounts due.

● Doubtful rated loans have all the weaknesses inherent in a loan that is classified substandard but with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high.

● Loss rated loans are not considered collectible under normal circumstances and there is no realistic expectation for any future payment on the loan. Loss rated loans are fully charged off.

TABLE 12: Credit Quality Indicators

Loans by credit quality indicators as of September 30, 2022 were as follows:


			Special			Substandard
(Dollars in thousands)	Pass		Mention	Substandard		Nonaccrual	Total 1
Real estate – residential mortgage	$	241,592	$ 469	$	841	$ 320	$	243,222
Real estate – construction 2		59,644	—		—	—		59,644
Commercial, financial and agricultural 3		739,567	692		5,899	1,329		747,487
Equity lines		43,156	3		5	111		43,275
Consumer		7,859	1		—	1		7,861
	$	1,091,818	$ 1,165	$	6,745	$ 1,761	$	1,101,489


			Non-
(Dollars in thousands)	Performing		Performing	Total
Consumer finance	$	465,170	$ 543	$	465,713

1 At September 30, 2022 , the Corporation did not have any loans classified as Doubtful or Loss.

2 Includes the Corporation’s real estate construction lending and consumer real estate lot lending.

3 Includes the Corporation’s commercial real estate lending, land acquisition and development lending, builder line lending and commercial business lending.

Loans by credit quality indicators as of December 31, 2021 were as follows:


			Special			Substandard
(Dollars in thousands)	Pass		Mention	Substandard		Nonaccrual	Total 1
Real estate – residential mortgage	$	215,432	$ 664	$	605	$ 315	$	217,016
Real estate – construction 2		57,495	—		—	—		57,495
Commercial, financial and agricultural 3		707,633	1,989		5,986	2,122		717,730
Equity lines		41,013	47		181	104		41,345
Consumer		8,276	—		1	3		8,280
	$	1,029,849	$ 2,700	$	6,773	$ 2,544	$	1,041,866


			Non-
(Dollars in thousands)	Performing		Performing	Total
Consumer finance	$	367,814	$ 380	$	368,194

1 At December 31, 2021 , the Corporation did not have any loans classified as Doubtful or Loss.

2 Includes the Corporation’s real estate construction lending and consumer real estate lot lending.

3 Includes the Corporation’s commercial real estate lending, land acquisition and development lending, builder line lending and commercial business lending.

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The decrease in non-pass rated loans at September 30, 2022 compared to December 31, 2021 was due primarily to the resolution of certain impaired loans.

Table 13 summarizes the Corporation’s credit ratios on a consolidated basis as of September 30, 2022 and December 31, 2021.

TABLE 13: Consolidated Credit Ratios


	September 30,			December 31,
(Dollars in thousands)	2022			2021
Total loans 1	$	1,567,202		$	1,410,060
Nonaccrual loans	$	2,304		$	2,924
Allowance for loan losses (ALL)	$	40,880		$	40,157
Nonaccrual loans to total loans		0.15	%		0.21	%
ALL to total loans		2.61	%		2.85	%
ALL to nonaccrual loans		1,774.31	%		1,373.36	%

1 Total loans does not include loans held for sale at the mortgage banking segment.

Table 14 summarizes nonperforming assets by principal business segments as of the dates indicated.

TABLE 14: Nonperforming Assets

Community Banking Segment


	September 30,			December 31,
(Dollars in thousands)	2022			2021
Loans, excluding purchased loans and PPP loans	$	1,053,648		$	954,262
Purchased performing loans 1		39,782			56,798
Purchased credit impaired loans 1		1,441			3,655
PPP loans 2		496			17,762
Total loans	$	1,095,367		$	1,032,477

Nonaccrual loans	$	1,449		$	2,359
OREO	$	423		$	835
Impaired loans 3	$	2,114		$	5,058

ALL	$	14,228		$	14,803
Nonaccrual loans to total loans		0.13	%		0.23	%
ALL to total loans		1.30	%		1.43	%
ALL to nonaccrual loans		981.92	%		627.51	%
ALL to total loans, excluding purchased credit impaired loans 4		1.30	%		1.44	%
ALL to total loans, excluding purchased loans and PPP loans		1.35	%		1.55	%
Annualized year-to-date net charge-offs to average total loans		0.01	%		0.01	%

1 Acquired loans are tracked in two separate categories – “purchased performing” and “purchased credit impaired.” The remaining discount for the purchased performing loans was $811,000 at September 30, 2022 and $1.1 million at December 31, 2021 . The remaining discount for the purchased credit impaired loans was $3.4 million at September 30, 2022 and $4.7 million at December 31, 2021 .

2 The principal amount of outstanding PPP loans was $496,000 at September 30, 2022 and $18.4 million at December 31, 2021 .

3 Impaired loans includes $1.3 million of loans on nonaccrual at September 30, 2022 and $2.2 million of loans on nonaccrual at December 31, 2021. Impaired loans also includes $2.1 million and $2.7 million of TDRs at September 30, 2022 and at December 31, 2021 .

4 The ratio of ALL to total loans, excluding purchased credit impaired loans, includes purchased performing loans and loans originated under the PPP for which no allowance for loan losses is required.

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Mortgage Banking Segment


	September 30,			December 31,
(Dollars in thousands)	2022			2021
Total loans 1	$	6,122		$	9,389
Nonaccrual loans	$	312		$	185
Impaired loans	$	150		$	150
ALL	$	390		$	563
Nonaccrual loans to total loans		5.10	%		1.97	%
ALL to total loans		6.37	%		6.00	%
ALL to nonaccrual loans		125.00	%		304.32	%
Annualized year-to-date net charge-offs to average total loans		—	%		—	%

2 Total loans does not include loans held for sale.

Consumer Finance Segment


	September 30,			December 31,
(Dollars in thousands)	2022			2021
Total loans	$	465,713		$	368,194
Nonaccrual loans	$	543		$	380
Repossessed assets	$	276		$	190
ALL	$	26,262		$	24,791
Nonaccrual loans to total loans		0.12	%		0.10	%
ALL to total loans		5.64	%		6.73	%
ALL to nonaccrual loans		4,836.46	%		6,523.95	%
Annualized year-to-date net recoveries to average total loans		0.19	%		(0.14)	%

Nonperforming assets of the community banking segment totaled $1.9 million at September 30, 2022 compared to $3.2 million at December 31, 2021. Nonperforming assets consisted of $1.4 million in nonaccrual loans and $423,000 in OREO at September 30, 2022 and consisted of $2.4 million in nonaccrual loans and $835,000 in OREO at December 31, 2021. The decrease in nonaccrual loans at September 30, 2022 as compared to December 31, 2021 was primarily due to the resolution of certain impaired loans during the first nine months of 2022.

At September 30, 2022, the allowance for loan losses at the community banking segment decreased to $14.2 million, compared to $14.8 million at December 31, 2021. The allowance for loan losses as a percentage of total loans at the community banking segment, excluding PCI loans, at September 30, 2022 decreased to 1.30 percent, compared to 1.44 percent at December 31, 2021. The allowance for loan losses as a percentage of total loans excluding all purchased loans and loans originated under the PPP decreased to 1.35 percent at September 30, 2022, compared to 1.55 percent at December 31, 2021, due primarily to the resolution of certain impaired loans and continued strong credit quality of the loan portfolio, partially offset by provision related to growth in the loan portfolio.

The consumer finance segment is an indirect lender that provides automobile financing through lending programs that are designed to serve customers both the prime and “non-prime” markets including those who have limited access to traditional automobile financing due to having experienced prior credit difficulties. The preferred automobile is a later model, low mileage used vehicle because the value of new vehicles typically depreciates rapidly. In addition to automobile financing, marine and RV loan contracts are also purchased on an indirect basis through a referral program administered by a third party. The marine and RV loan contracts are for prime loans averaging less than $50,000 made to individuals with higher credit scores.

Nonaccrual loans at the consumer finance segment were $543,000 at September 30, 2022, compared to $380,000 at December 31, 2021. Nonaccrual consumer finance loans remain low relative to the allowance for loan losses and the total consumer finance loan portfolio because the consumer finance segment generally initiates repossession of loan collateral once a loan becomes more than 60 days delinquent. Repossessed vehicles of the consumer finance segment are classified

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as other assets and consist only of vehicles the Corporation has the legal right to sell. Prior to the reclassification from loans to repossessed vehicles, the difference between the carrying amount of each loan and the fair value of each vehicle (i.e. the deficiency) is charged against the allowance for loan losses. At September 30, 2022, repossessed vehicles available for sale totaled $276,000, compared to $190,000 at December 31, 2021.

The consumer finance segment’s allowance for loan losses increased $1.5 million to $26.3 million at September 30, 2022 from $24.8 million at December 31, 2021. The consumer finance segment experienced net charge-offs at an annualized rate of 0.71 percent of average total loans for the third quarter of 2022, compared to net recoveries of 0.09 percent for the third quarter of 2021. Annualized net charge-offs for the first nine months of 2022 were 0.19 percent of average total loans, compared to net recoveries of 0.08 percent for the first nine months of 2021. The change in the net charge-off ratio for the third quarter and the first nine months of 2022 compared to the same periods in 2021 reflect a higher number of charge-offs during 2022 as government stimulus measures in response to the pandemic that benefitted borrowers had a decreased effect in 2022. Charge-offs in both years were lower than historical levels for the consumer finance segment, due to strong loan performance and a strong market for used autos, which mitigates losses on defaulted auto loans. The consumer finance segment has experienced loan performance since 2020 that has been stronger than periods prior to the onset of the COVID-19 pandemic, resulting in part from the consumer finance segment continuing to purchase higher quality loans, and in part from government stimulus measures in response to the pandemic that benefitted borrowers. At September 30, 2022, total delinquent loans as a percentage of total loans was 2.31 percent, compared to 2.16 percent at December 31, 2021 and 1.92 percent at September 30, 2021. The allowance for loan losses as a percentage of total loans decreased to 5.64 percent at September 30, 2022 from 6.73 percent at December 31, 2021, primarily as a result of continued strong credit quality.

The consumer finance segment at times offers payment deferrals to borrowers as a portfolio management technique to achieve higher ultimate cash collections on select loan accounts. Average amounts of payment deferrals on a monthly basis, which are not included in delinquent loans, were 1.73 percent and 1.21 percent as a percentage of average automobile loans outstanding for the third quarter of 2022 and 2021, respectively and were 1.56 percent and 1.13 percent as a percentage of average automobile loans outstanding for the first nine months of 2022 and 2021, respectively.

Impaired Loans

We measure impaired loans either based on fair value of the loan using the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent, or using the present value of expected future cash flows discounted at the loan’s effective interest rate. We maintain a valuation allowance to the extent that the measure of the impaired loan is less than the recorded investment in the loan. TDRs occur when we agree to significantly modify the original terms of a loan by granting a concession due to the deterioration in the financial condition of the borrower. These concessions typically are made for loss mitigation purposes and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. TDRs are considered impaired loans.

TABLE 15: Impaired Loans

Impaired loans, which included TDRs of $2.1 million, and the related allowance at September 30, 2022, were as follows:



			Recorded		Recorded
			Investment		Investment				Average
	Unpaid		in Loans		in Loans				Balance-		Interest
	Principal		without		with		Related		Impaired		Income
(Dollars in thousands)	Balance		Specific Reserve		Specific Reserve		Allowance		Loans		Recognized
Real estate – residential mortgage	$	907	$	187	$	720	$	46	$	764	$	27
Commercial, financial and agricultural:
Commercial real estate lending		1,329		—		1,329		105		1,329		—
Equity lines		28		28		—		—		28		1
Total	$	2,264	$	215	$	2,049	$	151	$	2,121	$	28

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Impaired loans, which included TDRs of $2.7 million, and the related allowance at December 31, 2021, were as follows:



			Recorded		Recorded
			Investment		Investment				Average
	Unpaid		in Loans		in Loans				Balance-		Interest
	Principal		without		with		Related		Impaired		Income
(Dollars in thousands)	Balance		Specific Reserve		Specific Reserve		Allowance		Loans		Recognized
Real estate – residential mortgage	$	1,689	$	550	$	1,035	$	63	$	1,560	$	64
Commercial, financial and agricultural:
Commercial real estate lending		1,389		—		1,390		103		1,393		72
Commercial business lending		2,234		—		2,123		489		2,257		—
Equity lines		118		110		—		—		119		4
Total	$	5,430	$	660	$	4,548	$	655	$	5,329	$	140

The decrease in the recorded investment in impaired loans and the related allowance at September 30, 2022 compared to December 31, 2021 is due primarily to the resolution of certain loans in the first nine months of 2022, which resulted in no losses being realized.

TDRs at September 30, 2022 and December 31, 2021 were as follows:

TABLE 16: Troubled Debt Restructurings


	September 30,	December 31,
(Dollars in thousands)	2022	2021
Accruing TDRs	$ 784	$ 2,575
Nonaccrual TDRs 1	1,329	115
Total TDRs 2	$ 2,113	$ 2,690

1 Included in nonaccrual loans in Table 14: Nonperforming Assets.

2 Included in impaired loans in Table 14: Nonperforming Assets and Table 15: Impaired Loans.

While TDRs are considered impaired loans, not all TDRs are on nonaccrual status. If a loan was on nonaccrual status at the time of the TDR modification, the loan will remain on nonaccrual status following the modification and may be returned to accrual status based on the Corporation’s policy for returning loans to accrual status. If a loan was accruing prior to being modified as a TDR and if management concludes that the borrower is able to make such modified payments, and there are no other factors or circumstances that would cause management to conclude otherwise, the TDR will remain on an accruing status.

FINANCIAL CONDITION

At September 30, 2022, the Corporation had total assets of $2.3 billion, which was an increase of $74.5 million since December 31, 2021. The increase was attributable primarily to increases in available for sale securities and loans held for investment, partially offset by a decrease in loans held for sale, and was funded by growth in money market, savings and demand deposits. The significant components of the Corporation’s Consolidated Balance Sheets are discussed below.

Loan Portfolio

Tables 17 and 18 present information pertaining to the composition of loans held for investment and the maturity/repricing of certain loans held for investment, respectively.

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TABLE 17: Summary of Loans Held for Investment


	September 30, 2022			December 31, 2021
(Dollars in thousands)	Amount	Percent		Amount	Percent
Real estate—residential mortgage	$ 243,222	15	%	$ 217,016	15	%
Real estate—construction 1	59,644	4		57,495	4
Commercial, financial, and agricultural 2	747,487	48		717,730	51
Equity lines	43,275	3		41,345	3
Consumer	7,861	1		8,280	1
Consumer finance	465,713	29		368,194	26
Total loans	1,567,202	100	%	1,410,060	100	%
Less allowance for loan losses	(40,880)			(40,157)
Total loans, net	$ 1,526,322			$ 1,369,903

1 Includes the Corporation’s real estate construction lending and consumer real estate lot lending.

2 Includes the Corporation’s commercial real estate lending, land acquisition and development lending, builder line lending and commercial business lending (which includes loans originated under the PPP of $496,000 and $17.8 million at September 30, 2022 and December 31, 2021, respectively). Other commercial, financial and agricultural loans were $747.0 million and $699.9 million at September 30, 2022 and December 31, 2021, respectively.

The increase in total loans from December 31, 2021 to September 30, 2022 was due primarily to growth in automobile loans and marine and recreational vehicle loans at the consumer finance segment and commercial real estate and residential mortgage lending at the community banking segment, partially offset by repayment of PPP loans.

TABLE 18: Maturity/Repricing Schedule of Loans Held for Investment


	September 30, 2022
	Real Estate				Commercial,
	Residential		Real Estate		Financial &		Equity				Consumer
(Dollars in thousands)	Mortgage		Construction		Agricultural		Lines		Consumer		Finance		Total
Variable Rate:
Within 1 year	$	668	$	31,512	$	208,146	$	43,275	$	54	$	—	$	283,655
1 to 5 years		1,912		—		69,388		—		—		—		71,300
5 to 15 years		66		—		21,618		—		—		—		21,684
After 15 years		—		—		—		—		—		—		—
Fixed Rate:
Within 1 year	$	4,508	$	22,924	$	29,306	$	—	$	1,422	$	5,733	$	63,893
1 to 5 years		29,775		2,047		190,146		—		5,010		167,889		394,867
5 to 15 years		161,506		2,811		218,365		—		1,375		292,091		676,148
After 15 years		44,787		350		10,518		—		—		—		55,655

	$	243,222	$	59,644	$	747,487	$	43,275	$	7,861	$	465,713	$	1,567,202

Beginning in April 2020, the community banking segment originated loans under the PPP which are guaranteed by the SBA, and in some cases borrowers may be eligible to obtain forgiveness of the loans, in which case loans would be repaid by the SBA. There were no net PPP origination fees recognized in the third quarter of 2022 and $679,000 were recognized in the first nine months of 2022, compared to $1.3 million and $3.4 million, respectively, in the same periods in 2021. All net PPP origination fees received by C&F Bank had been recognized in income as of June 30, 2022, totaling $6.3 million since the inception of the PPP. As repayment of PPP loans is guaranteed by the SBA, the community banking segment does not recognize a reserve for PPP loans in its allowance for loan losses. Table 19 presents the outstanding principal of loans originated under the PPP as of September 30, 2022 and December 31, 2021.

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TABLE 19: Paycheck Protection Program Loans


	September 30,	December 31,
(Dollars in thousands)	2022	2021
Outstanding principal	$ 496	$ 18,441
Unrecognized deferred fees, net	—	(679)
	$ 496	$ 17,762

Securities

The investment portfolio plays a primary role in the management of the Corporation’s interest rate sensitivity. In addition, the portfolio serves as a source of liquidity and is used as needed to meet collateral requirements. The investment portfolio consists of securities available for sale, which may be sold in response to changes in market interest rates, changes in prepayment risk, increases in loan demand, general liquidity needs and other similar factors. These securities are carried at estimated fair value. At September 30, 2022 and December 31, 2021, all securities in the Corporation’s investment portfolio were classified as available for sale.

Table 20 sets forth the composition of the Corporation’s securities available for sale in dollar amounts at fair value and as a percentage of the Corporation’s total securities available for sale at the dates indicated.

TABLE 20: Securities Available for Sale


	September 30, 2022				December 31, 2021
(Dollars in thousands)	Amount		Percent		Amount		Percent
U.S. Treasury securities	$	58,590	12	%	$	—	—	%
U.S. government agencies and corporations		130,210	26			68,285	18
Mortgage-backed securities		181,225	36			190,349	51
Obligations of states and political subdivisions		106,767	21			92,666	25
Corporate and other debt securities		22,772	5			21,773	6
Total available for sale securities at fair value	$	499,564	100	%	$	373,073	100	%

Securities available for sale increased by $126.5 million to $499.6 million at September 30, 2022 , compared to $373.1 million at December 31, 2021, due primarily to purchases of U.S. Treasury, U.S. government agencies and corporations and mortgage-backed securities with short maturities, in order to utilize excess liquidity by investing in debt securities rather than holding excess cash reserves. Net unrealized losses in the market value of securities available for sale were $50.3 million at September 30, 2022 and net unrealized gains in the market value of securities available for sale were $553,000 at December 31, 2021. The decline in market value of securities available for sale during the first nine months of 2022 was primarily a result of increases in market interest rates.

For more information about the Corporation's securities available for sale, including information about securities in an unrealized loss position at September 30, 2022 and December 31, 2021 , see Part I, Item 1, “Financial Statements” under the heading “Note 2: Securities” in this Quarterly Report on Form 10-Q.

Table 21 presents additional information pertaining to the composition of the securities portfolio at amortized cost, by the earlier of contractual maturity or expected maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.

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TABLE 21: Maturity of Securities



	September 30, 2022
			Weighted
	Amortized		Average
(Dollars in thousands)	Cost		Yield 1
U.S. Treasury securities:
Maturing within 1 year	$	8,398	2.52	%
Maturing after 1 year, but within 5 years		52,329	2.08
Total U.S. Treasury securities		60,727	2.14
U.S. government agencies and corporations:
Maturing within 1 year		68,750	2.29
Maturing after 1 year, but within 5 years		55,070	1.97
Maturing after 5 years, but within 10 years		19,275	1.41
Total U.S. government agencies and corporations		143,095	2.05
Mortgage-backed securities:
Maturing within 1 year		493	1.90
Maturing after 1 year, but within 5 years		135,305	1.79
Maturing after 5 years, but within 10 years		66,118	1.43
Maturing after 10 years		3,161	3.76
Total mortgage-backed securities		205,077	1.70
States and municipals: 1
Maturing within 1 year		22,339	3.28
Maturing after 1 year, but within 5 years		54,663	2.48
Maturing after 5 years, but within 10 years		36,035	2.55
Maturing after 10 years		2,652	3.50
Total states and municipals		115,689	2.68
Corporate and other debt securities:
Maturing within 1 year		2,035	2.67
Maturing after 1 year, but within 5 years		21,290	3.45
Maturing after 5 years, but within 10 years		2,000	4.03
Total corporate and other debt securities		25,325	3.43
Total securities:
Maturing within 1 year		102,015	2.53
Maturing after 1 year, but within 5 years		318,657	2.10
Maturing after 5 years, but within 10 years		123,428	1.80
Maturing after 10 years		5,813	3.64
Total securities	$	549,913	2.13

Yields on tax-exempt securities have been computed on a taxable-equivalent basis using the federal corporate income tax rate of 21 percent. The weighted average yield is calculated based on the relative amortized costs of the securities.

Deposits

The Corporation’s predominant source of funds is depository accounts, which are comprised of demand deposits, savings and money market accounts and time deposits. The Corporation’s deposits are principally provided by individuals and businesses located within the communities served.

During the first nine months of 2022, deposits increased $105.1 million to $2.02 billion at September 30, 2022, compared to $1.91 billion at December 31, 2021. Demand and savings deposits increased $143.5 million and time deposits decreased $38.4 million during the same period. This increase in demand and savings deposits was due in part to a shift in balances from time deposits toward lower-cost savings, money market and demand deposits.

The Corporation had $5,000 in brokered money market and time deposits outstanding at September 30, 2022 and December 31, 2021. The source of these brokered deposits is primarily uninvested cash balances held in third-party

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brokerage sweep accounts. The Corporation can access brokered deposits as a means of diversifying liquidity sources, if needed.

Borrowings

Borrowings increased to $93.2 million at September 30, 2022 from $90.5 million at December 31, 2021 due primarily to fluctuations in balances with commercial deposit customers with repurchase agreements.

Liquidity

The objective of the Corporation’s liquidity management is to ensure the continuous availability of funds to satisfy the credit needs of our customers and the demands of our depositors, creditors and investors. Stable core deposits and a strong capital position are the components of a solid foundation for the Corporation’s liquidity position. Additional sources of liquidity available to the Corporation include cash flows from operations, loan payments and payoffs, deposit growth, maturities, calls and sales of securities, the issuance of brokered certificates of deposit and the capacity to borrow additional funds.

Liquid assets, which include cash and due from banks, interest-bearing deposits at other banks and nonpledged securities available for sale, totaled $387.0 million at September 30, 2022, compared to $454.6 million at December 31, 2021. The Corporation’s funding sources, including capacity, amount outstanding and amount available at September 30, 2022 are presented in Table 22.

TABLE 22: Funding Sources


	September 30, 2022
(Dollars in thousands)	Capacity	Outstanding	Available
Unsecured federal funds agreements	$ 95,000	$ —	$ 95,000
Repurchase lines of credit	35,000	—	35,000
Borrowings from FHLB	211,831	—	211,831
Borrowings from Federal Reserve Bank	104,660	—	104,660
Total	$ 446,491	$ —	$ 446,491

We have no reason to believe these arrangements will not be renewed at maturity. Additional loans and securities are available that can be pledged as collateral for future borrowings from the Federal Home Loan Bank of Atlanta (FHLB) above the current lendable collateral value. Our ability to maintain sufficient liquidity may be affected by numerous factors, including economic conditions nationally and in our markets. Depending on our liquidity levels, our capital position, conditions in the capital markets, our business operations and initiatives, and other factors, we may from time to time consider the issuance of debt, equity or other securities or other possible capital market transactions, the proceeds of which could provide additional liquidity for our operations.

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 operational requirements and contractual obligations.

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Capital Resources

The disclosure below presents the Corporation’s and the Bank’s actual capital amounts and ratios under currently applicable regulatory capital standards. Under the small bank holding company policy statement of the Federal Reserve Board, which applies to certain bank holding companies with consolidated total assets of less than $3 billion, the Corporation is not subject to regulatory capital requirements. The table below reflects the Corporation’s consolidated capital as determined under regulations that apply to bank holding companies that are not small bank holding companies and minimum capital requirements that would apply to the Corporation if it were not a small bank holding company. Although the minimum regulatory capital requirements are not applicable to the Corporation, the Corporation calculates these ratios for its own planning and monitoring purposes.

TABLE 23: Regulatory Capital


	September 30, 2022
					Minimum Capital				Well Capitalized
	Actual				Requirements				Requirements
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
The Corporation
Total risk-based capital ratio	$	272,349	15.4	%	$	141,535	8.0	%	$	N/A	N/A	%
Tier 1 risk-based capital ratio		226,002	12.8			106,151	6.0			N/A	N/A
Common Equity Tier 1 capital ratio		201,002	11.4			79,613	4.5			N/A	N/A
Tier 1 leverage ratio		226,002	9.6			93,831	4.0			N/A	N/A

The Bank
Total risk-based capital ratio	$	247,037	14.2	%	$	139,538	8.0	%	$	174,423	10.0	%
Tier 1 risk-based capital ratio		224,999	12.9			104,654	6.0			139,538	8.0
Common Equity Tier 1 capital ratio		224,999	12.9			78,490	4.5			113,375	6.5
Tier 1 leverage ratio		224,999	9.7			93,106	4.0			116,383	5.0


	December 31, 2021
					Minimum Capital				Well Capitalized
	Actual				Requirements				Requirements
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
The Corporation
Total risk-based capital ratio	$	257,779	15.8	%	$	130,817	8.0	%	$	N/A	N/A	%
Tier 1 risk-based capital ratio		213,095	13.0			98,113	6.0			N/A	N/A
Common Equity Tier 1 capital ratio		188,095	11.5			73,585	4.5			N/A	N/A
Tier 1 leverage ratio		213,095	9.7			88,121	4.0			N/A	N/A

The Bank
Total risk-based capital ratio	$	233,780	14.5	%	$	128,701	8.0	%	$	160,876	10.0	%
Tier 1 risk-based capital ratio		213,423	13.3			96,526	6.0			128,701	8.0
Common Equity Tier 1 capital ratio		213,423	13.3			72,394	4.5			104,569	6.5
Tier 1 leverage ratio		213,423	9.8			87,184	4.0			108,980	5.0

The regulatory risk-based capital amounts presented above include: (1) common equity tier 1 capital (CET1) which consists principally of common stock (including surplus) and retained earnings with adjustments for goodwill and intangible assets; (2) Tier 1 capital which consists principally of CET1 plus the Corporation’s “grandfathered” trust preferred securities; and (3) Tier 2 capital which consists principally of Tier 1 capital plus a limited amount of the allowance for loan losses and $24.0 million of outstanding subordinated notes of the Corporation. The Total Capital ratio, Tier 1 Capital ratio and CET1 ratio are calculated as a percentage of risk-weighted assets. The Tier 1 Leverage ratio is calculated as a percentage of average tangible assets. In addition, the Corporation has made the one-time irrevocable election to

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continue treating accumulated other comprehensive income (AOCI) under regulatory standards that were in place prior to the Basel III Final Rule in order to eliminate volatility of regulatory capital that can result from fluctuations in AOCI and the inclusion of AOCI in regulatory capital, as would otherwise be required under the Basel III Capital Rule. As a result of this election, changes in AOCI, including unrealized losses on securities available for sale, do not affect regulatory capital amounts shown in the table above for the Corporation or the Bank. For additional information about the Basel III Final Rules, see “Item 1. Business” under the heading “Regulation and Supervision” and “Item 8. Financial Statements and Supplementary Data,” under the heading “Note 17: Regulatory Requirements and Restrictions” in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2021.

The Basel III rules established a “capital conservation buffer” of 2.5 percent above the regulatory minimum risk-based capital ratios, which is not included in the table above. Including the capital conservation buffer, the minimum ratios are a common equity Tier I risk-based capital ratio of 7.0 percent, a Tier I risk-based capital ratio of 8.5 percent, and a total risk-based capital ratio of 10.5 percent. The Corporation and the Bank exceeded these ratios at September 30, 2022 and December 31, 2021.

The Corporation’s Board of Directors authorized a program, effective December 1, 2021, to repurchase up to $10.0 million of the Corporation’s common stock through November 30, 2022 (the 2021 Repurchase Program). The Corporation's capital resources may be affected by the 2021 Repurchase Program. Repurchases under the 2021 Repurchase Program may be made through privately negotiated transactions or open market transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 under the Securities Exchange Act of 1934, as amended, and shares repurchased will be returned to the status of authorized and unissued shares of common stock. The timing, number and purchase price of shares repurchased under the 2021 Repurchase Program will be determined by management in its discretion and will depend on a number of factors, including the market price of the shares, general market and economic conditions, applicable legal requirements and other conditions, and there is no assurance that the Corporation will purchase any shares under the 2021 Repurchase Program. The 2021 Repurchase Program is authorized through November 30, 2022, and, as of September 30, 2022, there was $6.6 million remaining available for repurchases of the Corporation’s common stock under the 2021 Repurchase Program.

USE OF CERTAIN NON-GAAP FINANCIAL MEASURES

The accounting and reporting policies of the Corporation conform to GAAP in the United States and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of the Corporation’s performance. These include ROTCE, tangible book value per share, and the following fully-taxable equivalent (FTE) measures: interest income on loans-FTE, interest income on securities-FTE, total interest income-FTE and net interest income-FTE. Interest on tax-exempt loans and securities is presented on a taxable-equivalent basis (which converts the income on loans and investments for which no income taxes are paid to the equivalent yield as if income taxes were paid) using the federal corporate income tax rate of 21 percent that was applicable for all periods presented.

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

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TABLE 24: Non-GAAP Table


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands, except for share and per share data)	2022			2021			2022			2021
Reconciliation of Certain Non-GAAP Financial Measures
Return on Average Tangible Common Equity
Average total equity, as reported	$	198,363		$	199,954		$	201,181		$	195,156
Average goodwill		(25,191)			(25,191)			(25,191)			(25,191)
Average other intangible assets		(1,781)			(2,092)			(1,857)			(2,166)
Average noncontrolling interest		(525)			(564)			(769)			(839)
Average tangible common equity	$	170,866		$	172,107		$	173,364		$	166,960

Net income	$	6,545		$	7,827		$	19,063		$	23,082
Amortization of intangibles		75			79			224			236
Net income attributable to noncontrolling interest		(65)			(153)			(212)			(339)
Net income attributable to C&F Financial Corporation	$	6,555		$	7,753		$	19,075		$	22,979

Annualized return on average equity, as reported		13.20	%		15.66	%		12.63	%		15.77	%
Annualized return on average tangible common equity		15.35	%		18.02	%		14.67	%		18.35	%

Fully Taxable Equivalent Net Interest Income 1
Interest income on loans	$	23,159		$	22,120		$	65,566		$	66,399
FTE adjustment		41			25			110			70
FTE interest income on loans	$	23,200		$	22,145		$	65,676		$	66,469

Interest income on securities	$	2,646		$	1,407		$	6,362		$	3,976
FTE adjustment		110			106			293			346
FTE interest income on securities	$	2,756		$	1,513		$	6,655		$	4,322

Total interest income	$	26,326		$	23,604		$	72,949		$	70,546
FTE adjustment		151			131			403			416
FTE interest income	$	26,477		$	23,735		$	73,352		$	70,962

Net interest income	$	24,380		$	21,618		$	67,487		$	64,022
FTE adjustment		151			131			403			416
FTE net interest income	$	24,531		$	21,749		$	67,890		$	64,438

1 Assuming a tax rate of 21%.


	September 30,		December 31,
	2022		2021
Tangible Book Value Per Share
Equity attributable to C&F Financial Corporation	$	184,767	$	210,318
Goodwill		(25,191)		(25,191)
Other intangible assets		(1,753)		(1,977)
Tangible equity attributable to C&F Financial Corporation	$	157,823	$	183,150

Shares outstanding		3,491,184		3,545,554

Book value per share	$	52.92	$	59.32
Tangible book value per share	$	45.20	$	51.66

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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

This report contains statements concerning the Corporation’s expectations, plans, objectives or beliefs regarding future financial performance and other statements that are not historical facts, which may constitute “forward-looking statements” as defined by federal securities laws. Forward-looking statements generally can be identified by the use of words such as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “may,” “will,” “intend,” “should,” “could,” or similar expressions, are not statements of historical fact, and are based on management’s beliefs, assumptions and expectations regarding future events or performance as of the date of this report, taking into account all information currently available. These statements may include, but are not limited to statements regarding expected future operations and financial performance; expected trends in yields on loans; expected future recovery of investments in debt securities, future dividend payments; strategic business initiatives and the anticipated effects thereof on net interest income; mortgage loan originations; technology initiatives; our diversified business strategy; asset quality, credit quality; adequacy of allowances for loan losses and the level of future charge-offs; capital levels; the effect of future market and industry trends; increases in interest rates and the effects of future interest rate levels and fluctuations; cybersecurity risks; and inflation. These forward-looking statements are subject to significant risks and uncertainties due to factors that could have a material adverse effect on the operations and future prospects of the Corporation, including, but not limited to, changes in:

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

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

● general economic conditions, including unemployment levels, inflation rates, supply chain disruptions and slowdowns in economic growth, and also including the economic impacts of the COVID-19 pandemic

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

● the effectiveness of the Corporation’s efforts to respond to the COVID-19 pandemic, the pace of economic recovery when the COVID-19 pandemic subsides and the heightened impact it has on many of the risks described herein and in other periodic reports the Corporation files with the SEC

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

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

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

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

● the inventory level and pricing of used automobiles, including sales prices of repossessed vehicles

● the level of net charge-offs on loans and the adequacy of our allowance for loan losses

● the level of indemnification losses related to mortgage loans sold

● demand for loan products

● deposit flows

● the strength of the Corporation’s counterparties

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

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

● reliance on third parties for key services

● the commercial and residential real estate markets

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

● the Corporation’s technology initiatives and other strategic initiatives

● the Corporation’s branch expansions and consolidations

● cyber threats, attacks or events

● expansion of C&F Bank’s product offerings

● accounting principles, policies and guidelines, and elections made by the Corporation thereunder.

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These risks and uncertainties, and the risks discussed in more detail in Item 1A. “Risk Factors,” of Part I of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2021 should be considered in evaluating the forward-looking statements contained herein.

Readers should not place undue reliance on any forward-looking statement. There can be no assurance that actual results will not differ materially from historical results or those expressed in or implied by such forward-looking statements, or that the beliefs, assumptions and expectations underlying such forward-looking statements will be proven to be accurate. Forward-looking statements are made as of the date of this report and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which the statement was made, except as otherwise required by law.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Corporation’s primary component of market risk is interest rate volatility. A description of the Corporation’s interest rate risk and its asset/liability management process for monitoring and managing this risk can be found in Item 7A of Part II in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021. The Corporation recognizes that recent increases in interest rates and other changes have affected its sensitivity to interest rate risk as measured by the simulation analysis and economic value of equity analysis included in Item 7A of Part II in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021. The Corporation’s process for monitoring and managing this risk remains consistent with the description provided as of December 31, 2021, and the Corporation’s risk profile with respect to interest rates as of September 30, 2022 has not changed materially compared to December 31, 2021.

ITEM 4. CONTROLS AND PROCEDURES

The Corporation’s management, including the Corporation’s Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Corporation’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Corporation’s disclosure controls and procedures were effective as of September 30, 2022 to ensure that information required to be disclosed by the Corporation in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Corporation’s management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Corporation’s disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Corporation or its subsidiary to disclose material information required to be set forth in the Corporation’s periodic reports.

There were no changes in the Corporation’s internal control over financial reporting during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II – OTHER INFORMATIO N

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors faced by the Corporation from those disclosed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The Corporation’s Board of Directors authorized a program, effective December 1, 2021, to repurchase up to $10.0 million of the Corporation’s common stock through November 30, 2022 (the 2021 Repurchase Program). Repurchases under the 2021 Repurchase Program may be made through privately negotiated transactions or open market transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 under the Exchange Act and shares repurchased will be returned to the status of authorized and unissued shares of common stock. There were 34,262 shares repurchased under the 2021 Repurchase Program during the third quarter of 2022. As of September 30, 2022, the Corporation has made aggregate common stock repurchases of 67,249 shares for an aggregate cost of $3.4 million under the 2021 Repurchase Program.

The following table summarizes repurchases of the Corporation’s common stock that occurred during the three months ended September 30, 2022.


					Maximum Number
					(or Approximate
				Total Number of	Dollar Value) of
				Shares Purchased as	Shares that May Yet
				Part of Publicly	Be Purchased
	Total Number of	Average Price Paid		Announced Plans or	Under the Plans or
	Shares Purchased	per Share		Programs	Programs
July 1, 2022 - July 31, 2022	5,941	$	46.04	5,941	$	8,059,685
August 1, 2022 - August 31, 2022	13,971	$	49.53	13,971	$	7,367,668
September 1, 2022 - September 30, 2022	14,350	$	50.79	14,350	$	6,638,793
Total	34,262	$	49.45	34,262

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ITEM 6. EXHIBITS


3.1	Amended and Restated Articles of Incorporation of C&F Financial Corporation, effective March 7, 1994 (incorporated by reference to Exhibit 3.1 to Form 10-Q filed November 8, 2017)
3.1.1	Amendment to Articles of Incorporation of C&F Financial Corporation, effective January 8, 2009 (incorporated by reference to Exhibit 3.1.1 to Form 8-K filed January 14, 2009)
3.2	Amended and Restated Bylaws of C&F Financial Corporation, as adopted December 15, 2020 (incorporated by reference to Exhibit 3.1 to Form 8-K filed December 17, 2020)

10.1	Nonqualified Supplemental Deferred Compensation Plan, Plan Document, for C&F Financial Corporation Nonqualified Deferred Compensation Plan for Directors and Executives

10.2	Nonqualified Supplemental Deferred Compensation Plan Adoption Agreement, effective January 1, 2023, for C&F Financial Corporation Non-Qualified Deferred Compensation Plan for Directors and Executives

31.1	Certification of CEO pursuant to Rule 13a-14(a)
31.2	Certification of CFO pursuant to Rule 13a-14(a)
32	Certification of CEO/CFO pursuant to 18 U.S.C. Section 1350
101	The following financial statements from the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL, filed herewith: (i) the Consolidated Balance Sheets (unaudited), (ii) the Consolidated Statements of Income (unaudited), (iii) the Consolidated Statements of Comprehensive Income (Loss) (unaudited), (iv) the Consolidated Statements of Equity (unaudited), (v) the Consolidated Statements of Cash Flows (unaudited) and (vi) the Notes to Consolidated Financial Statements (unaudited)

104	The cover page from the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL (included within Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		C&F FINANCIAL CORPORATION
			(Registrant)

Date:	November 8, 2022	By:	/s/ Thomas F. Cherry
			Thomas F. Cherry
			President and Chief Executive Officer
			(Principal Executive Officer)

Date:	November 8, 2022		/s/ Jason E. Long
			Jason E. Long
			Executive Vice President, Chief Financial Officer and Secretary
			(Principal Financial and Accounting Officer)

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