AGM 2021

Apr 20, 2021

Good afternoon, and welcome to C&F Financial Corporation's 2021 Annual Shareholders Meeting. We are holding a virtual meeting in light of the ongoing coronavirus outbreak because our priority is the safety of our employees, shareholders and community. I'm Larry Dillon, Executive Chairman of your corporation, And I now call the Annual Meeting of Shareholders to order. I thank you for your interest as expressed by your participation and proxies. Please note that we will have our usual Q and A session at the end of the meeting. Shareholders who logged into the meeting using their 11 digit control number are able to submit questions through the meeting using the message function within the online meeting portal. And we will address your questions, those that are pertinent to the shareholders generally, at the end of the meeting. Also, your phone lines will remain on mute during this meeting. Participating in the meeting with me today are Tom Cherry, President and CEO of the Corporation Jason Long, Secretary of the Corporation. The Directors of the Corporation are all attending today's virtual meeting, and I would like to introduce each director. The corporation's directors are divided into 3 classes: The directors in Class 1, who have been nominated for election to serve until the year 2024 are James H. Hudson III, C. Ellis Olson, D. Anthony P, Doctor. Jeffrey O. Smith and I. The directors in Class 2, whose terms expire in 2022 are Audrey D. Holmes, Elizabeth R. Kelly, James T. Napier and Paul C. Robinson. The directors in Class III, whose terms expire in 2023, are Julie R. Agnew, J. P. Causey Jr, Thomas F. Cherry and George R. Sissom III. All of the C&F Financial Corporation Directors as well as Brian McKernan, who is President and CEO of C&F Mortgage Corporation, also serve as Directors of Citizens and Farmers Bank. We would normally introduce the directors of C&F Bank Richmond and other executive officers of the corporation and its subsidiaries. However, due to today's circumstances, we will not do so for this meeting. This is the annual shareholders meeting of the corporation. Only shareholders of record at the close of business on February 19, 2021, or their duly authorized representatives are entitled to participate in the affairs of this meeting, including voting and asking questions. The proxy committee appointed by the directors consists of James H. Hudson and I. We will vote all shares that are represented by proxies as directed on the proxies. In addition, the Board of Directors has appointed Jason Wong to serve as the Inspector of the election for this meeting. He has taken the oath of office and will certify the results of the voting. All C&F Financial Corporation shareholders entitled to vote at this meeting have the ability to do so online during this meeting if you logged into the meeting using your 11 digit control number. If you are a shareholder entitled to vote and have not yet voted or if you want to change your previously cast vote, please do so now via the voting function on the online meeting portal. Please remember that if you have already voted by proxy, it is not necessary to vote again. After voting has been completed on all matters on the agenda, we will close the polls, and the Inspector of the election will present his preliminary report. Mr. Wong, please report on the attendance at this meeting. Mr. Chairman, the number of proxies received shows that at least 79% of the total outstanding shares entitled to vote are represented by proxy. Therefore, a quorum is present for business to be conducted at this meeting. Since a quorum is present, the meeting is open for business. Mr. Long, was the notice of the meeting properly mailed? Yes, sir. The corporation's notice of annual meeting of shareholders and accompanying proxy statement were mailed on or about March 12, 2021, to each shareholder of record as of February 19, 2021. I move that the reading of the printed notice of the 2021 Annual Meeting and the minutes of the 2020 Annual Meeting be waived. Do I have a second? 2nd. Without exception, it is so ordered. The Secretary has a list of the holders of record of common stock of the company at the close of business on February 19, 2021. This list of shareholders has been opened for examination of the company. This list is available for inspection during this meeting. Any shareholder requesting to review the list should e mail their name for verification purposes to investorcffc.com. In addition, the secretary will file a copy of this list of shareholders with the records of the company. We will now consider and vote on the matters in the proxy statement. It is now 3:37 p. M, and I declare the polls are open. The first proposal to come before the meeting is the election of Directors. The Board has nominated James H. Hudson III, C. Ellis Olson, D. Anthony Peay, Doctor. Jeffrey O. Smith and me to serve as Class 1 directors for the term expiring in 2024. Each shareholder has received a proxy statement listing the names of the candidates for election as Directors. Proposal 2 is the advisory vote on the compensation of the corporation's named executive officers. The Board of Directors has unanimously recommended that the shareholders approve the corporation's executive compensation as described in the proxy statement. Each shareholder has received a proxy statement describing our approach to executive compensation and providing the details of each named executive officers' compensation. And proposal 3 is the ratification of the appointment of the independent registered public accounting firm. The Board of Directors has appointed Jantheiden Barber as the corporation's independent registered public accountant for 2021. Since everyone has had the opportunity to vote, it is now 3:38 p. M, and I declare the polls are closed. The Inspector of the election will now present his preliminary report. Mr. Chairman, proxies have been voted as follows. Each of the nominees for Director received more than 63% of the votes cast in favor of his or her election. The proposal to approve on an advisory non binding basis the compensation of our named executive officers as described in the proxy statement received more than 93% of the votes cast in favor of the proposal. And the proposal to ratify the appointment of Yan Heiden Barber as the company's independent registered public accounting firm for 2021 received more than 99% of the votes in favor. I declare the nominees elected James H. Hudson III, C. Ellis Olson, D. Anthony Peay, Doctor. Jeffrey O. Smith, and I will serve until the 2024 Annual Meeting of Shareholders. I declare that the shareholders have voted in support of the compensation of the corporation's named executive officers as described in the proxy statement. And I declare that the shareholders have ratified the appointment of Jan Heiden Barber as the corporation's independent registered public accountant for 2021. The exact number of shares voted for each proposal will be recorded in the minutes of today's meeting. Attending the meeting today representing Yount Heiden Barber is Justin Crowder. He will be available at the conclusion of the meeting to answer any questions you might have of him. There is no other business to come before this meeting. At this time, Tom Cherry will give a report on the state of the corporation and its operations. Thank you, Larry. Hello, everyone, and welcome to our 2021 Annual Shareholders Meeting. Unfortunately, we're doing this meeting virtual again versus in person at Stone House. Hopefully, this will be our last virtual meeting. The thought of getting together in a large group and joining in camaraderie sounds pretty good about right now, again hopefully next year. So let's get started. I want to spend some time with you to talk about where we are regarding the pandemic, talk about highlights from 2020, and talk about our primary goals and challenges over the next year and beyond. Let's start by addressing the pandemic. As I stated last year, our primary focus throughout this pandemic has been to ensure we are doing all we can to address the impact it's having on our 3 our employees, our customers and communities, and you, our shareholders. So what did we do and what are we continuing to do? First of all, for our employees, our most important concern has always been the health and well-being of our employees and their families. Throughout this pandemic, we've taken and continue to take steps both from a physical and financial standpoint to ensure they are safe and able to take care of their families. I think the most important thing we did was to maintain the continuity of pay and benefits for all employees. We have not had any layoffs nor have we cut anyone's pay. That cannot be said by all financial institutions. We're currently working with Care Team, our in house clinic here at Stonehouse, to administer the vaccine to our employees who've not been able to receive the vaccine from somewhere else. This started at the end of March and continues today. For our customers and communities, we continue to provide crucial financial services to families and businesses. We are also maintaining safe and healthy practices for those who visit any of our locations. We are confident the safety protocols we put in place protect both our employees and our customers. As you're well aware, many businesses have been severely impacted by COVID-nineteen. To address this situation, Congress created the Paycheck Protection Program referred to as the PPP to encourage business owners to retain employees during the crisis by offering forgivable loans to cover certain operating costs. We are very proud of how C and S stepped up to make sure our business customers were able to get PPP loans. To date, we have processed over 1800 PPP loan applications and distributed over $135,000,000 to local businesses, likely preserving 100, if not 1,000, of jobs for families in the markets we serve. I've never been prouder of our team's performance with this program. In addition to PPP, we've also worked hard to accommodate as many customers as we could, both businesses and individuals who needed deferrals or modifications of loan payments. We made deferrals and modifications on loan balances of over $104,000,000 throughout the pandemic. Most of these customers are now making regular payments, which shows that it helps. We've always believed that continually strengthening the local community benefits both citizens and local businesses. It is now more important than ever. CNF Gives Back is our program to make sure we play a leading role for this purpose in our communities. In 2020, C and F Gives Back continued to support groups like Junior Achievement, Richmond Animal League, Rise Against Hunger, Caritas, Natasha House and many more who saw their biggest fundraising events canceled last year. We're also proud to say that we kept our promise to local children with our traditional sanitary program. For you, our shareholders, we've taken steps to secure the company's financial condition and to position it to withstand the long term economic repercussions of this pandemic. Most importantly, our capital has grown significantly has grown significantly because of our record earnings in 2020, which I'll talk about shortly. In the Q3 of last year, we issued $20,000,000 of subordinate notes, which are included in Tier 2 capital of the corporation for regulatory purposes. While we believe our capital position is more than adequate, this gives us insurance from the unknown and will ensure we remain well positioned for future growth opportunities. While the quality of our loans remains strong, we still don't know the ultimate effects of the pandemic. Therefore, we increased our loan loss reserves throughout 2020. While this reduced net income, it will protect us in the future if needed. We understand that the dividends we pay are a very important source of income to you. We have continued to pay our dividends throughout the pandemic and at this time plan to continue paying a regular quarterly dividend. We are very aware that the performance of our stock is important to you. Our stock price has taken a hit as a result of the pandemic and it hasn't recovered as much as we would like. While we don't run the company worrying about the stock price in the short term, we realize that our stock price along with the dividends that we pay are a measure of the progress we have made in the investments in our people, systems and products, both in good times and bad times. While we're not happy with our current stock price, our total shareholder return over the last 10 years of nearly 130% through the end of last year is in line with the S and PUS. Broad index for banks of approximately 156%. This index includes all banks, not just community banks in the U. S. Be assured, we are committed to serving you, our shareholders, our customers and our employees through these unprecedented times. I feel pretty good that the actions that we've taken so far in the best interest of CNF. Despite all that happened in 2020, we had record break at earnings and accomplished many of our strategic goals. Our company's 2020 net income was a record $22,400,000 $3,500,000 higher than 20 19. Total assets for the company now exceed $2,000,000,000 loans increased to $1,300,000,000 and deposits grew to 1,800,000,000 dollars So how did we do this in the pandemic? As I said in this year's shareholder letter, great challenges can be the source of great performances, and I believe that's true for C and F. I say this often, but it bears repeating. Our diversified business strategy continues to serve us well. As a reminder, in addition to the bank, we have a mortgage company, a finance company and a wealth management company. C and F Mortgage had record earnings last year. Earnings at C and F Mortgage was $10,700,000 in 2020 compared to $3,800,000 in 20 19. Because of a low interest rate environment and an extremely active housing market, loan originations at C and F Mortgage were $1,800,000,000 last year compared to $944,000,000 in 20 19. We nearly doubled our originations. CNF Wealth Management also had record earnings. We attribute this strong performance to several factors: an increase in assets under management, the successful transition to a recurring revenue stream business model and the addition of a new investment advisor in Richmond. CNF Wealth Management now has assets under management of over 500,000,000 dollars C and F Finance earnings increased to $7,600,000 in 2020 compared to $6,900,000 in 20 19. Credit quality at C&F Finance has consistently improved since we strengthened our underwriting standards in 2016. As a result, we have experienced a sustained decline in annual charge offs, decreasing to 1.54% for 2020, the lowest level of annual charge offs since we acquired the business in 2002. However, as mentioned earlier, we still don't know the ultimate effects of the pandemic on the economy. Therefore, we added to the provision for loan losses throughout 2020. Earnings at the bank were $5,400,000 last year compared to $9,900,000 in 20 19. 1 reason for the decrease in earnings was an increase in provision for loan losses to protect from potential losses resulting from the pandemic. Like C and F Finance, the portfolio at the bank is currently in great shape with minimal past dues or charge offs, but again, banks may get worse. If losses happen, we'll be ready. You've also heard me talk about margin compression in the past. This is usually driven by historically low interest rates, which we are experiencing. When rates fall as much and as fast as they did back in March of 2020, we earn much less than our loans. At the same time, it takes us longer to reduce what we're paying on deposits, especially CDs. We're working to adjust to these new market conditions, but it takes time to see the impact. Just to put it in perspective, when the Fed reduced interest rates by 175 basis points overnight back in March of 2020, we had over $500,000,000 in assets repriced downward immediately, which equates to about a $9,000,000 loss in interest income. We also had merger related expenses included in the bank's 2020 results. The closing of the Peoples acquisition the conversions of the systems, services and products was a positive story last year. As a result, we now offer 5 additional retail branches serving the communities of Dahlgren, Fredericksburg, King George, Montross and Warsaw in the northern neck of Virginia. These products were successfully transitioned to C and F Bank product systems and signage in the Q2 of 2020, bringing our combined footprint to 31 locations across Eastern and Central Virginia and West De Charlottesville. Loans at the bank grew by over 7% and market. Deposits grew by over 22%, excluding the impact of the Peoples acquisition. While some of the increase is because of stimulus checks and PPP loans that turned into deposit balances, most of this was organic growth. We also opened 2 new financial centers, 1 in Charlottesville on Route 29 at Stonefield Commons and the other in Downtown Richmond at the corner of 10th and Byrd Street. Both locations are open for business and doing well. Lastly, and most importantly, we never stopped serving our customers. We figured out how to run our operation centers at all of our subsidiaries with a fraction of on-site employees and our branch teams kept serving customers day in and day out. So as you can see, despite the pandemic, we had a very successful 2020. So what about 2021 and beyond? Our overall outlook for 2021 and beyond remains very positive, although there will be some challenges. Challenges include the pandemic and vaccine distribution, cybersecurity and fraud prevention, the low interest rate environment and the impacts of the changing political landscape. Also, attaining the earnings we had at C&F Mortgage last year will also be a challenge. As I mentioned earlier, we had record originations at C&F Mortgage in 2020. While originations are off to a good start in 2021, matching last year's record will be Look, we all know the problems of 2020 didn't just go away on January 1, but neither did our opportunities. First of all, the pandemic and its effects are still going to be with us for much of the year. So we'll need to continue to focus on taking care of everyone's health, and that means closely following protocols and safety measures. However, that doesn't mean we will not continue to act on our strategic goals. So what are some of those goals? For C and F Mortgage, as I've mentioned in the past, success in the mortgage business was largely driven by the retention of long term quality loan officers. We've consistently placed a high degree of focus on this with positive results and we'll continue to do so in 2021. We also actively recruit quality, experienced loan officers and continually develop new loan officers through our loan officer school. C and F Mortgage introduced lender solutions in 2017, a service that generates fee income by providing certain mortgage origination functions to smaller financial institutions at a more cost effective price than if these companies perform the functions themselves. We continue to grow this service in 2020 by assisting these institutions in closing over 2,000 loans compared to only 400 in 2019. We believe we can continue to grow this service in 2021 and beyond. For C&F Finance. We are excited about the upcoming relocation of C&F Finance's corporate headquarters to a new facility near the Richmond Airport. This will replace our current lease space, which we've outgrown. Our long term commitment to SINA Finance made building a new corporate headquarters key to our strategic initiatives for the future. We are currently in the process of moving into these new headquarters. In addition, we're working towards converting to a new own servicing system and working with several Fintech companies, both of which are necessary to help continue to grow our business in this segment. For CNET Wealth Management. We recently added a new advisor in Charlottesville in the Charlottesville market and are currently considering additional advisors for the Fredericksburg and Hampton Roads markets, which will give us coverage of our entire banking footprint. Further, our CNA financial concept has greatly increased the joint appointments our advisors are holding with bank and mortgage teammates, helping us provide additional convenience to our customers while generating more business for each subsidiary. For C and F Bank, we need to continue growing earning assets, in particular loans. This is critical because that's what drives our profitability more than anything. We have have a strong commercial team who is already off to what should be a great year for growth. We'll continue to explore expansion opportunities both in retail and commercial in markets such as Hampton Road, Charlottesville, Fredericksburg and Richmond. Digital services were a huge factor in 2020. Thank goodness we made the investment in digital years ago. We'll add to our services in 2021. Leveraging the Peoples merger with our Northern Neck team is a big objective in 2021 since we couldn't do much of that in 2020. If you think about it, because of the pandemic, we really haven't had the opportunity to learn much about these communities, nor does this market know much about CNF. Many of our customers in the Northern Neck are just now learning about the breadth of our products and services. Operating models for all retail businesses were already evolving heading into 2020 due to changes in customer preferences. The pace of change accelerated as COVID-nineteen severely disrupted the business landscape with financial services being no exception. For example, transaction volume at our branches declined approximately 6% in each of the last 3 years leading up to 2020. Once the effects of the pandemic began to materialize, this decline accelerated to 25% as customers increased their use of digital options. The pace of this trend alone highlights the urgent need for reconfiguration of the traditional bank branch model. We've been developing and implementing a plan for this over the last few years. We have a refreshed plan for our branch network that is now the framework for a more aggressive reengineering of the C and F retail branch model as we know it. I cannot overemphasize the importance of digital options in the future. We made a determination several years ago that it was critical for our lines of businesses to significantly expand the digital services we offer to customers and we'll continue to do so. At C and F Bank, mobile banking features such as check deposit, mobile wallet, bill pay, Zelle person to person payments and debit card control have now become indispensable to customers given current circumstances. In fact, mobile deposit volume now makes this service our busiest branch, logging more transactions in any of our traditional bank locations. Customers of all ages are adopting our digital services at a very high rate. CMF Mortgage now offers a fully digital application document collection process. It is currently in a pilot program to offer an electronic closing process where most borrowers closing documents can be executed from the comfort and safety of their own homes. C and F Finance continues of implementing fully digital contracting. These examples and many others now affirm the foresight of our investment in the C and F digital platform and while adding to these digital services remains a top priority for 2021 years to come. Another priority throughout the company is to become even more dedicated to recruiting, growing and retaining the best talent available. I've always said our most important asset is our employees. No matter how digital world becomes, we are still only as strong as the skills and commitment of our employees. We are continually reviewing our benefits, our training and our overall work environment culture to ensure we continue to invest in our employees. As CNS shareholders, you understand that the company is more than just a bank. We are 4 companies and 1 that are effectively integrated in terms of what we can do for a customer and how we perform as a company. However, in some markets, our customers don't have the same awareness. That's why we've concentrated our efforts on creating a common brand message and appearance across our websites, our signage and our facilities. While we're very pleased with our progress, we see additional opportunity in the future. These are just some of the initiatives that are underway at your company and why our overall outlook for 2021 and beyond remains very positive. In addition to the initiatives that are underway throughout C and F, succession planning for our Board of Directors is critical to the overall strategic planning of your company. Accordingly, the Board appointed Doctor. Jeffrey Smith to serve as Director of the company this past September. Doctor. Smith has served for over 30 years in public education as an educator and administrator, including work in 8 public school divisions and serving as the current superintendent of Hampton City Schools. He has been a leader in many business community and civic organizations, including serving on the Boards of Directors of Centerra Healthcare, Smart Beginnings of the Virginia Peninsula, the Virginia Air and Space Center and the Board of Trustees for the Williamsburg Health Foundation. His knowledge of organizations, business practices and the communities we serve will be of great value to C and F. And finally, I'd be remiss if I did not mention the political and social events that occurred throughout 2020 and continue into 2021. They are alarming to us, giving our long standing values of showing respect for others and always conducting ourselves morally and ethically in all relationships. While we may not be able to solve the problems on a national level, we know that our company is devoted to strengthening the communities we serve. That is why we follow our values and invest in all individuals and businesses, so they can achieve their goals and dreams. Thank you once again for your loyal support of our company. Stay safe and be well. I look forward to seeing you next year in person. Thank you, Tom. We will now begin our question and answer session. We will address questions that have been submitted prior to or during the meeting that are pertinent to shareholders generally. I'm being told we have no questions. There are no questions, I declare the meeting adjourned. Thank you very much for attending.