C & F FINANCIAL CORP

Previous wording

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. For additional information regarding the Company’s results for the three months ended March 31, 2024 and the three and six months ended June 30, 2024, please refer to our first and second quarter Form 10-Qs filed with the SEC on May 7, 2024 and August 2, 2024, respectively. 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.

Current wording

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.

Previous wording

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.

Current wording

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 balance these financial measures with acceptable levels of interest rate risk, while satisfying liquidity and capital requirements and monitoring asset quality. 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:

Previous wording

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.

Current wording

Consolidated net income increased $2.0 million for the first quarter of 2025 compared to the same period in 2024 due to higher net income at all business segments, primarily 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.

Previous wording

Key highlights for the third quarter and first nine months of 2024 are as follows.

Current wording

Key factors affecting comparison for the first quarter of 2025 are as follows.

Previous wording

Total equity was $228.0 million at September 30, 2024, compared to $217.5 million at December 31, 2023. Under regulatory capital standards, the Corporation’s tier 1 risk-based capital and total risk-based capital ratios at September 30, 2024 were 11.6 percent and 13.8 percent, respectively, compared to 12.6 percent and 14.8 percent, respectively, at December 31, 2023. The decrease in the Corporation’s tier 1 risk-based capital and total risk-based capital ratios at September 30, 2024 compared to December 31, 2023 was due primarily to growth in risk-weighted assets resulting from higher balances of loans outpacing growth in equity. At September 30, 2024, the book value per share of the Corporation’s common stock was $70.29, and tangible book value per share, which is a non-GAAP financial measure, was $62.13, compared to $64.28 and $56.40, respectively, at December 31, 2023.

Current wording

Total equity was $235.3 million at March 31, 2025, compared to $227.0 million at December 31, 2024. Under regulatory capital standards, the Corporation’s tier 1 risk-based capital and total risk-based capital ratios at March 31, 2025 and December 31, 2024 were 11.9 percent and 14.1 percent, respectively. At March 31, 2025, the book value per share of the Corporation’s common stock was $72.51 and tangible book value per share, which is a non-GAAP financial measure, was $64.39, compared to $70.00 and $61.86, respectively, at December 31, 2024.

Previous wording

Total equity increased $10.4 million at September 30, 2024 compared to December 31, 2023, due primarily to net income and lower unrealized losses in the market value of securities available for sale, which are recognized as a component of other comprehensive income, partially offset by share repurchases and dividends paid on the Corporation’s common stock. The Corporation’s securities available for sale are fixed income debt securities and their unrealized loss position, a component of accumulated other comprehensive income, is a result of rising market interest rates since they were purchased. The Corporation expects to recover its investments in debt securities through scheduled payments of principal and interest, and unrealized losses are not expected to affect the earnings or regulatory capital of the Corporation or C&F Bank. The accumulated other comprehensive loss related to the Corporation’s securities available for sale decreased to $17.2 million at September 30, 2024, compared to $25.0 million at December 31, 2023, as a result of fluctuations in debt security market interest rates.

Current wording

Total equity increased $8.3 million at March 31, 2025 compared to December 31, 2024, due primarily to net income and lower unrealized losses in the market value of securities available for sale, which are recognized as a component of other comprehensive income, partially offset by dividends paid on the Corporation’s common stock. The Corporation’s securities available for sale are fixed income debt securities and their net unrealized loss position is a result of increased market interest rates since they were purchased. The Corporation expects to recover its investments in debt securities through scheduled payments of principal and interest. Unrealized losses are not expected to affect the earnings or regulatory capital of the Corporation or C&F Bank. The accumulated other comprehensive loss related to the Corporation’s securities available for sale, net of deferred income taxes, decreased to $19.1 million at March 31, 2025, compared to $23.7 million at December 31, 2024 due primarily to fluctuations in debt security market interest rates and a decrease in the balance of securities available for sale in an unrealized loss position as a result of maturities, calls and paydowns.

Previous wording

The Corporation declared a quarterly cash dividend of 44 cents per share during the third quarter of 2024, which was paid on October 1, 2024. This dividend represents a payout ratio of 26.7 percent of earnings per share for the third quarter of 2024. The Board of Directors of the Corporation continually reviews the amount of cash dividends per share and the resulting dividend payout ratio in light of changes in economic conditions, current and future capital 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, growth expectations and other factors.

Current wording

The Corporation’s Board of Directors declared a quarterly cash dividend of 46 cents per share during the first quarter of 2025, which was paid on April 1, 2025. This dividend represents a payout ratio of 27.7 percent of earnings per share for the first quarter of 2025. 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, growth expectations and other factors.

Previous wording

The Corporation has a share repurchase program that was authorized by the Board of Directors to repurchase up to $10.0 million of the Corporation’s common stock, effective January 1, 2024 through December 31, 2024. During the third quarter and first nine months of 2024, the Corporation repurchased 60,520 shares, or $3.2 million, and 149,594 shares, or $7.3 million, of its common stock under this share repurchase program, respectively.

Current wording

The Corporation has a share repurchase program that was authorized by the Board of Directors to repurchase up to $5.0 million of the Corporation’s common stock, effective January 1, 2025 through December 31, 2025. During the first quarter of 2025, the Corporation did not make any repurchases of its common stock under this share repurchase program.

Previous wording

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, 2024 and 2023. 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.

Current wording

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 months ended March 31, 2025 and 2024. 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.

Previous wording

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.

Current wording

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

Previous wording

and a shift to higher cost deposits, partially offset by an increase in yields and higher balances of earning assets. Annualized net interest margin increased to 4.13 percent for the third quarter of 2024 compared to 4.12 percent and 4.09 percent for the second quarter of 2024 and the first quarter of 2024, respectively. The Federal Reserve Bank (FRB) increased the target federal funds interest rate from an upper limit of 4.50 percent at December 31, 2022 to 5.50 percent by September 30, 2023, where it remained unchanged until September 2024 when it was lowered to 5.00 percent. The yield on interest-earning assets increased by 48 basis points and 47 basis points for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The cost of interest-bearing liabilities increased by 82 basis points and 97 basis points for the third quarter and first nine months of 2024, respectively, compared to the same periods of 2023. Average earning assets increased $119.0 million and $77.1 million for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. Average interest-bearing liabilities increased $144.8 million and $113.4 million for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. Average noninterest-bearing demand deposits decreased $39.6 million and $49.5 million for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023.

Current wording

Net interest income, on a taxable-equivalent basis, for the first quarter of 2025 increased to $25.3 million, compared to $23.4 million for the first quarter of 2024, due primarily to an increase in net interest margin and higher average balances of earning assets. Annualized net interest margin increased 7 basis points to 4.16 percent for the first quarter of 2025 compared to the same period of 2024, due primarily to a change in the mix of earning assets and higher yields on earning assets, partially offset by an increase in costs of interest-bearing deposits. The Federal Reserve Bank (FRB) target federal funds interest rate was at an upper limit of 5.50 percent at December 31, 2023 until the FRB began decreasing it in September 2024, decreasing it to 4.50 percent by December 31, 2024, where it remained during the first quarter of 2025. The yield on interest-earning assets increased by 20 basis points for the first quarter of 2025 compared to the same period in 2024. The cost of interest-bearing liabilities increased by 16 basis points for the first quarter of 2025 compared to the same period of 2024. Average earning assets increased $160.0 million for the first quarter of 2025 compared to the same period in 2024. Average interest-bearing liabilities increased $133.5 million for the first quarter of 2025 compared to the same period in 2024. Average noninterest-bearing demand deposits increased $13.5 million for the first quarter of 2025 compared to the same period in 2024.

Previous wording

Average loans, which includes both loans held for investment and loans held for sale, increased $204.9 million to $1.93 billion for the third quarter of 2024 and increased $165.5 million to $1.87 billion for the first nine months of 2024, compared to the same periods in 2023. Average loans at the community banking segment increased $186.5 million, or 15.2 percent, for the third quarter of 2024 and increased $158.4 million, or 13.2 percent, for the first nine months of 2024, compared to the same periods in 2023, due primarily to growth in the construction, commercial real estate, and residential mortgage segments of the loan portfolio. Average loans at the consumer finance segment increased $8.3 million, or 1.8 percent, for the third quarter of 2024 and increased $3.0 million, or less than 1.0 percent, for the first nine months of 2024, compared to the same periods in 2023, due primarily to an increase in the marine and recreational vehicles segment of the loan portfolio. Average loans at the mortgage banking segment, which consist of loans held for sale, increased $10.0 million, or 33.2 percent, for the third quarter of 2024 and increased $4.0 million, or 15.2 percent, for the first nine months of 2024, compared to the same periods in 2023.

Current wording

Average loans, which includes both loans held for investment and loans held for sale, increased $160.2 million to $1.95 billion for the first quarter of 2025 compared to the same period in 2024. Average loans at the community banking segment increased $165.3 million, or 12.7 percent, for the first quarter of 2025, compared to the same period in 2024, due primarily to growth in the construction, commercial real estate, land acquisition and development and builder lines segments of the loan portfolio. Average loans at the consumer finance segment decreased $8.3 million, or 1.8 percent, for the first quarter of 2025, compared to the same period in 2024, due primarily to lower average balances of automobile loans. Average loans at the mortgage banking segment, which consist of loans held for sale, increased $3.3 million, or 18.5 percent, for the first quarter of 2025 compared to the same period in 2024.

Previous wording

The community banking segment average loan yield increased 43 basis points to 5.58 percent for the third quarter of 2024 and increased 42 basis points to 5.48 percent for the first nine months of 2024, compared to the same periods in 2023, due primarily to the effects of the higher interest rate environment. The consumer finance segment average loan yield increased 39 basis points to 10.48 percent for the third quarter of 2024 and increased 43 basis points to 10.37 percent for the first nine months of 2024, compared to the same periods in 2023, due primarily to the effects of the higher interest rate environment, partially offset by the effects of purchasing higher credit quality loan contracts which have lower yields. The mortgage banking segment average loan yield decreased 89 basis points to 5.90 percent for the third quarter of 2024 and decreased 44 basis points to 6.13 percent for the first nine months of 2024, compared to the same periods in 2023, due to fluctuations in mortgage interest rates and in the mix of mortgage loan products originated.

Current wording

The community banking segment average loan yield increased 17 basis points to 5.52 percent for the first quarter of 2025 compared to the same period in 2024, due primarily to a shift in the mix of the loan portfolio to higher yielding loans and renewals of fixed rate loans originated during periods of lower interest rates. The consumer finance segment average loan yield increased 35 basis points to 10.56 percent for the first quarter of 2025, compared to the same period in 2024, due primarily to the effects of the overall higher interest rate environment. The mortgage banking segment average loan yield

Previous wording

Average securities available for sale decreased $86.1 million and $85.5 million for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023, due primarily to maturities of U.S. treasury and government agency securities outpacing purchases in all sectors of the portfolio. The average yield on the securities portfolio on a taxable-equivalent basis increased 31 basis points to 2.70 percent for the third quarter of 2024 and increased 28 basis points to 2.62 percent for the first nine months of 2024, compared to the same periods in 2023, due primarily to the higher interest rate environment and the maturity of lower-yielding securities.

Current wording

Average securities available for sale decreased $27.7 million to $458.5 million for the first quarter of 2025, compared to the same period in 2024, due primarily to maturities, calls and paydowns outpacing purchases in the portfolio. The average yield on the securities portfolio on a taxable-equivalent basis increased 37 basis points to 2.92 percent for the first quarter of 2025 compared to the same period in 2024, due primarily to purchases of securities in the overall higher interest rate environment and maturities of lower-yielding securities.

Previous wording

Average interest-bearing deposits in other banks, consisting primarily of excess cash reserves maintained at the FRB, increased $200,000 for the third quarter of 2024 and decreased $2.9 million for the first nine months of 2024, compared to the same periods of 2023. The average yield on interest-bearing deposits in other banks increased 9 basis points for the third quarter of 2024 and increased 21 basis points for the first nine months of 2024, compared to the same periods in 2023, due to the higher interest rate environment.

Current wording

Average interest-bearing deposits in other banks, consisting primarily of excess cash reserves maintained at the FRB, increased $27.4 million to $55.8 million for the first quarter of 2025 compared to the same period of 2024. The average yield on interest-bearing deposits in other banks decreased 2 basis points for the first quarter of 2025, compared to the same period in 2024, due to the decrease in the federal funds interest rate, partially offset by the impacts of the timing of cash items in process, which don’t earn interest until they settle and have a larger effect on yields during periods of lower average balances.

Previous wording

nine months of 2024, respectively, compared to the same periods in 2023. The average cost of interest-bearing deposits increased 97 basis points for the third quarter of 2024 and increased 114 basis points for the first nine months of 2024, compared to the same periods in 2023, due primarily to higher rates on money market and time deposits, a shift in composition towards time deposits amid the higher interest rate environment and increased competition for deposits.

Current wording

Average savings and money market and interest-bearing demand deposits combined increased $1.3 million to $821.5 million for the first quarter of 2025, compared to the same period in 2024. Average non-interest-bearing demand deposits increased $13.5 million to $545.3 million for the first quarter of 2025 compared to the same period in 2024. Average time deposits increased $116.8 million to $821.9 million for the first quarter of 2025 compared to the same period in 2024. The average cost of interest-bearing deposits increased 15 basis points to 2.40 percent for the first quarter of 2025, compared to the same period in 2024, due primarily to a shift in composition towards time deposits amid the overall higher interest rate environment and increased competition for deposits.

Previous wording

Average borrowings decreased $30.5 million and $37.2 million for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023, due primarily to fluctuations in repurchase agreements and net paydowns of Federal Home Loan Bank of Atlanta (FHLB) advances. The average cost of borrowings decreased 7 basis points for the third quarter of 2024 and decreased 10 basis points for the first nine months of 2024, compared to the same periods in 2023, due primarily to a shift in the mix of borrowings related to paydowns of higher-rate short-term borrowings, partially offset by the effects of higher interest rates.

Current wording

Average borrowings increased $15.3 million to $121.8 million for the first quarter of 2025, compared to the same period in 2024, due primarily to fluctuations in repurchase agreements and Federal Home Loan Bank of Atlanta (FHLB) advances. The average cost of borrowings increased 14 basis points for the first quarter of 2025, compared to the same period in 2024, due primarily to a shift in the mix of borrowings.

Previous wording

The Corporation believes that the effects of declining market interest rates could adversely affect its net interest margin in the short term as its assets typically reprice downward more quickly than its deposits and borrowings. The Corporation also believes that the higher interest rate environment will continue to have a positive effect on yields of renewals of fixed rate loans originated during periods of lower interest rates and purchases of securities available for sale. The Corporation also expects that a portion of the Corporation’s funding will continue to be drawn from borrowings in the near term, which may result in a higher cost of funds. The effect of these factors on the Corporation’s net interest margin will depend on a number of factors, including the Corporation’s ability to grow loans at the community banking segment and consumer finance segment, to compete for deposits, and the extent of its reliance on borrowings. The Corporation can give no assurance as to the timing or extent of changes in market interest rates or the impact of those changes or any other factor on the Corporation's ability to compete for loans and deposits or on its net interest margin. If market interest rates were to rise, net interest margin could be positively impacted in the short term as the Corporation generally expects its assets to reprice upward more quickly than its deposits and borrowings.

Current wording

The Corporation believes that the effects of declining market interest rates, if continued during 2025, could adversely affect its net interest margin in the short term as its assets typically reprice downward more quickly than its deposits and borrowings. The Corporation also believes any such adverse impacts could be somewhat mitigated by renewals of fixed rate loans originated during periods of lower interest rates and purchases of securities available for sale in the overall higher interest rate environment. The interest rate environment has grown increasingly uncertain during 2025 and the ultimate effect of these factors on the Corporation’s net interest margin will also depend on other factors, including the Corporation’s ability to grow loans at the community banking and consumer finance segments, to compete for deposits, and the extent of its reliance on borrowings. The Corporation gives no assurance as to the timing or extent of changes in market interest rates or the impact of those changes or any other factor on the Corporation's ability to compete for loans and deposits or on its net interest margin. If market interest rates were to rise, net interest margin could be positively affected in the short term as the Corporation generally expects its assets to reprice upward more quickly than its deposits and borrowings.

Previous wording

Total noninterest income increased $2.6 million, or 41.2 percent, for the third quarter of 2024 and increased $1.8 million, or 8.1 percent, for the first nine months of 2024, compared to the same periods of 2023, due primarily to fluctuations in unrealized gains on the rabbi trust, higher wealth management services income, higher other service charges and fees, and higher investment income from other equity interests. The increase for the third quarter of 2024 also included higher gains on sales of loans due to higher volume of mortgage loan originations.

Current wording

Total noninterest income increased $81,000, or 1.1 percent, for the first quarter of 2025, compared to the same period of 2024, due primarily to higher volume of mortgage loan production which resulted in higher gains on sales of loans and higher mortgage banking fee income, and higher other service charges, partially offset by fluctuations in unrealized gains and losses on investments held in the rabbi trust.

Previous wording

The Corporation’s consolidated effective income tax rate was 18.7 percent for the third quarter of 2024, an increase compared to 18.6 percent for the same period in 2023 due primarily to a lower share of income at the community banking segment, which is primarily not subject to state income taxes. The Corporation’s consolidated effective income tax rate was 17.8 percent for the first nine months of 2024, a decrease compared to 18.8 percent for the same period in 2023 due primarily to a higher share of income at the community banking segment, which is primarily not subject to state income taxes.

Current wording

The Corporation’s consolidated effective income tax rate was 17.3 percent for the first quarter of 2025, an increase compared to 14.1 percent for the same period in 2024 due primarily to a lower share of income at the community banking segment, which is primarily not subject to state income taxes.

Previous wording

The community banking segment reported net income of $5.3 million and $13.9 million for the third quarter and first nine months of 2024, respectively, compared to $5.7 million and $17.7 million for the same periods in 2023. The decreases in community banking segment net income were due primarily to:

Current wording

The community banking segment reported net income of $5.4 million for the first quarter of 2025, compared to $4.0 million for the same period in 2024. The increase in community banking segment net income was due primarily to:

Previous wording

Net interest income for the community banking segment decreased by $126,000 to $18.3 million for the third quarter of 2024 and decreased $3.3 million to $52.9 million for the first nine months of 2024, compared to the same periods in 2023 due primarily to a decrease in net interest margin, partially offset by higher average balances of earning assets. Included in net interest income is interest income on variable rate loans to the consumer finance and mortgage banking segments. Average loan yields and average costs of interest-bearing deposits were higher for the third quarter and first nine months of 2024, compared to the same periods of 2023, due primarily to the effects of the higher interest rate environment.

Current wording

Net interest income for the community banking segment increased by $1.6 million to $18.8 million for the first quarter of 2025, compared to the same period in 2024 due primarily to higher average balances of earning assets and an increase in net interest margin. Average interest-earning asset yields were higher for the first quarter of 2025, compared to the same period of 2024, due primarily to a shift in the mix of the loan portfolio to higher yielding loans, renewals of fixed rate loans originated during periods of lower interest rates, purchases of securities in the overall higher interest rate environment and maturities of lower-yielding securities. This increase was partially offset by an increase in the average costs of interest-bearing deposits for the first quarter of 2025, compared to the same period of 2024, due primarily to the continued effects of a shift in the mix of deposits with customers seeking higher yielding opportunities as a result of higher interest rates paid on time deposits. Interest income allocated to the community banking segment includes interest income on loans to the consumer finance and mortgage banking segments. These transactions are eliminated to reach consolidated totals.

Previous wording

The community banking segment recorded $700,000 and $1.7 million in provision for credit losses for the third quarter and first nine months of 2024, respectively, due primarily to growth in the loan portfolio, compared to $500,000 and $1.6 million in provision for credit losses for the same periods in 2023. Noninterest income increased for the third quarter and first nine months of 2024, compared to the same periods in 2023, due primarily to higher wealth management services income and higher investment income from other equity interests. Noninterest expenses increased for the third quarter and first nine months of 2024, compared to the same periods in 2023, due primarily to higher occupancy, data processing and other expenses.

Current wording

The community banking segment recorded $100,000 in provision for credit losses for the first quarter of 2025, compared to $500,000 for the same period of 2024, due primarily to lower loan growth. Noninterest income increased for the first quarter of 2025, compared to the same period in 2024, due primarily to higher other service charges and fees and higher investment income from other equity interests, partially offset by lower service charges on deposit accounts. Noninterest expenses increased for the first quarter of 2025, compared to the same period in 2024, due primarily to higher marketing and advertising expenses and data processing, partially offset by lower salaries and employee benefits .

Previous wording

Elevated level of mortgage interest rates, combined with higher home prices and lower levels of inventory, has led to a level of mortgage loan originations in 2024 and 2023 for the industry that is lower than levels during 2022 and 2021. Mortgage loan originations for the mortgage banking segment increased 21.1 percent and decreased less than 1.0 percent for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. 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 increased 27.7 percent and 4.3 percent for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. Locked loan commitments were $48.2 million at September 30, 2024 compared to $26.2 million and $40.9 million at December 31, 2023 and September 30, 2023, respectively. Mortgage loan segment originations include originations of loans sold to the community banking segment, at prices similar to those paid by third-party investors. All interest expense at the mortgage banking segment is on variable rate borrowings from the community banking segment. These transactions are eliminated to reach consolidated totals.

Current wording

Despite the sustained elevated level of mortgage interest rates, higher home prices and low levels of inventory, mortgage banking segment loan originations increased 20.6 percent for the first quarter of 2025, compared to the same period in 2024. 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 increased 18.2 percent for the first quarter of 2025 compared to the same period in 2024. Locked loan commitments were $71.8 million at March 31, 2025 compared to $39.3 million and $55.8 million at December 31, 2024 and March 31, 2024, respectively. Mortgage loan segment originations include originations of loans sold to the community banking segment, at prices similar to those paid by third-party investors. All interest expense at the mortgage banking segment is on variable rate borrowings from the community banking segment. These transactions are eliminated to reach consolidated totals.

Previous wording

Mortgage lender services fee income is derived from providing mortgage origination functions to third-party mortgage lenders for a fee. Mortgage lender services fee income decreased for the third quarter and first nine months of 2024, compared to the same periods in 2023, due primarily to the negative impacts of reduced mortgage loan volume in the industry, partially offset by an increase in the number of institutional customers and the types of services provided.

Current wording

Through the Lender Solutions division of the mortgage banking segment, mortgage lender services fee income is derived from providing mortgage origination functions to third-party mortgage lenders for a fee. Mortgage lender services fee income increased for the first quarter of 2025, compared to the same period in 2024, due primarily to an increase in fees and the types of services provided.

Previous wording

and economic uncertainty related to the COVID-19 pandemic. The release of indemnification reserves in 2024 and 2023 was due primarily to improvement in the mortgage banking segment’s assessment of borrower payment performance, lower volume of mortgage loan originations in recent years and other factors affecting expected losses on mortgage loans sold in the secondary market, such as time since origination. Management believes that the indemnification reserve is sufficient to absorb losses related to loans that have been sold in the secondary market.

Current wording

During the first quarter of 2025, the mortgage banking segment recorded a reversal of provision for indemnification losses of $25,000 compared to a reversal of provision for indemnification losses of $140,000 for the first quarter of 2024. The release of indemnification reserves in 2025 and 2024 was due primarily to lower volume of mortgage loan originations in recent years, improvement in the mortgage banking segment’s assessment of borrower payment performance and other factors affecting expected losses on mortgage loans sold in the secondary market, such as time since origination. Management believes that the indemnification reserve is sufficient to absorb losses related to loans that have been sold in the secondary market.

Previous wording

The consumer finance segment reported net income of $311,000 and $1.1 million for the third quarter and first nine months of 2024, respectively, compared to net income of $682,000 and $2.3 million for the same periods in 2023. The decreases in consumer finance segment net income were due primarily to:

Current wording

The consumer finance segment reported net income of $226,000 for the first quarter of 2025, compared to a net loss of $63,000 for the same period in 2024. The increase in consumer finance segment net income was due primarily to:

Previous wording

Average loan yields and average cost of borrowings were higher for the third quarter and first nine months of 2024, compared to the same periods of 2023, due primarily to the effects of the higher interest rate environment. All interest expense at the consumer finance segment is on fixed and variable rate borrowings from the community banking segment. These transactions are eliminated to reach consolidated totals.

Current wording

Net interest income for the consumer finance segment increased by $219,000 to $6.4 million for the first quarter of 2025, compared to the same period in 2024 due primarily to higher net interest margin, partially offset by lower average balances of loans. Average loans decreased $8.3 million, or 1.8 percent, for the first quarter of 2025, compared to the same period in 2024. All interest expense at the consumer finance segment is on fixed and variable rate borrowings from the community banking segment. These transactions are eliminated to reach consolidated totals.

Previous wording

passage of time since the expiration of stimulus and enhanced unemployment benefits that benefitted borrowers. If loan performance deteriorates, resulting in further elevated delinquencies or net charge-offs, or if values of used vehicles decline, provision for credit losses may increase in future periods.

Current wording

amount charged-off when a loan was uncollectable. If loan performance deteriorates, resulting in further elevated delinquencies or net charge-offs, the provision for credit losses may increase in future periods.

Previous wording

The Corporation conducts an analysis of the collectability of the loan portfolio on a regular basis and uses this analysis to assess the sufficiency of the allowance for credit losses on loans and to determine the necessary provision for credit losses. The Corporation segmented the loan portfolio into three loan portfolios based on common risk characteristics.

Current wording

The Corporation conducts an analysis of the collectability of the loan portfolio on a regular basis and uses this analysis to assess the sufficiency of the allowance for credit losses on loans and to determine the necessary provision for credit losses. The Corporation segments the loan portfolio into three loan portfolios based on common risk characteristics.

Previous wording

The Corporation monitors the consumer finance loan portfolio by past due status and by credit rating at the time of origination, which the Corporation believes serves as a relevant indicator of aggregate credit quality and risk of loan defaults in the portfolio based upon the use of Fair Isaac Corporation (FICO) Scores over time for loan approval decisions and through experience analyzing loss patterns. The characteristics of these credit ratings are as follows:

Current wording

The Corporation monitors the consumer finance loan portfolio by past due status and by credit rating at the time of origination, which the Corporation believes serves as a relevant indicator of aggregate credit quality and risk of loan defaults in the portfolio based upon the use of Fair Isaac Corporation (FICO) Scores over time for loan approval decisions and through experience analyzing loss patterns. The characteristics of these credit ratings and our thresholds are as follows:

Previous wording

Loans are required to be measured at amortized cost and to be presented at the net amount expected to be collected. Off balance sheet credit exposures, including loan commitments, are not recorded on balance sheet, but expected credit losses arising from off balance sheet credit exposures are recorded as a reserve for unfunded commitments and reported in Other Liabilities.

Current wording

Loans are required to be measured at amortized cost and to be presented at the net amount expected to be collected. Credit losses on available for sale debt securities are accounted for as an allowance for credit losses, which is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value and the amount expected to be collected on the financial asset. Off balance sheet credit exposures, including loan commitments, are not recorded on balance sheet, but expected credit losses arising from off balance sheet credit exposures are recorded as a reserve for unfunded commitments and reported in Other Liabilities. The following table presents the Corporation’s reserve for unfunded commitments for the periods indicated.

Previous wording

The following table presents a breakdown of the provision for credit losses for the periods indicated:

Current wording

The allowance for credit losses on loans and available for sale debt securities and the reserve for unfunded commitments are established through a provision for credit losses charged against earnings. The following table presents a breakdown of the provision for credit losses for the periods indicated:

Previous wording

Nonaccrual loans at the consumer finance segment were $1.1 million at September 30, 2024 compared to $892,000 at December 31, 2023. Nonaccrual consumer finance loans remain low relative to the allowance for credit 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 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 credit losses. At September 30, 2024, repossessed vehicles available for sale totaled $522,000 compared to $646,000 at December 31, 2023.

Current wording

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 credit losses. At March 31, 2025, repossessed vehicles available for sale totaled $976,000 compared to $779,000 at December 31, 2024.

Previous wording

The consumer finance segment experienced net charge-offs at an annualized rate of 2.65 percent and 2.36 percent of average total loans for the third quarter and first nine months of 2024, respectively, compared to 1.99 percent and 1.75 percent for the same periods of 2023, due primarily to an increase in the number of delinquent loans and repossessions and a higher average charge-off per unit as a result of larger loan amounts due to higher automobile values during 2020 and 2021 and a decline in wholesale values of used automobiles since then. Annualized net charge-offs for third quarter of 2024 increased from 1.88 percent for the second quarter of 2024 due primarily to seasonal trends within the portfolio. At September 30, 2024, total delinquent loans as a percentage of total loans was 3.49 percent compared to 4.09 percent at December 31, 2023 and 3.30 percent at September 30, 2023. Delinquency and loss rates have generally returned to pre-pandemic levels due to the passage of time since the expiration of stimulus and enhanced unemployment benefits that benefitted borrowers. The allowance for credit losses was $23.2 million at September 30, 2024 and $23.6 million at December 31, 2023. The allowance for credit losses as a percentage of total loans decreased to 4.87 percent at September 30, 2024, compared to 5.03 percent at December 31, 2023, due primarily to growth in loans with stronger credit quality while balances of loans with lower credit quality declined.

Current wording

The consumer finance segment experienced net charge-offs at an annualized rate of 2.64 percent of average total loans for the first quarter of 2025, compared to 2.54 percent for the same period of 2024, due primarily to an increase in the number of delinquent loans, the number of repossessions and the average amount charged-off when a loan was uncollectable. At March 31, 2025, total delinquent loans as a percentage of total loans was 3.05 percent compared to 3.90 percent at December 31, 2024 and 2.78 percent at March 31, 2024. The allowance for credit losses was $22.5 million at March 31, 2025 and $22.7 million at December 31, 2024. The allowance for credit losses as a percentage of total loans increased to 4.88 percent at March 31, 2025, compared to 4.86 percent at December 31, 2024.

Previous wording

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. A significant reliance on deferrals as a means of managing collections may result in a lengthening of the loss confirmation period, which would increase expectations of credit losses inherent in the portfolio. Average amounts of payment deferrals of automobile loans on a monthly basis, which are not included in delinquent loans, were 1.91 percent, 2.20 percent and 1.58 percent as a percentage of average automobile loans outstanding for the third quarter of 2024, the third quarter of 2023 and the second quarter of 2024, respectively. Average amounts of payment deferrals of automobile loans on a monthly basis, which are not included in delinquent loans, were 1.70 percent and 1.83 percent as a percentage of average automobile loans outstanding for the first nine months of 2024 and 2023, respectively.

Current wording

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. A significant reliance on deferrals as a means of managing collections may result in a lengthening of the loss confirmation period, which would increase expectations of credit losses inherent in the portfolio. Average amounts of payment deferrals of automobile loans on a monthly basis, which are not included in delinquent loans, were 1.75 percent, 1.62 percent and 2.11 percent as a percentage of average automobile loans outstanding for the first quarter of 2025, the first quarter of 2024 and the fourth quarter of 2024, respectively.

Previous wording

and collection methods employed by the consumer finance segment, we cannot guarantee that these criteria or methods will afford adequate protection against these risks. With the consumer finance segment’s use of a scorecard model for purchasing loan contracts, the credit-worthiness of borrowers at origination has improved for automobile loans purchased and the level of credit losses experienced has decreased relative to long-term historical averages. We cannot provide any assurance that the consumer finance segment’s net charge-off ratio will not increase in future periods. However, we believe that the current allowance for credit losses is adequate to reflect the net amount expected to be collected on existing consumer finance segment loans that may become uncollectible. If factors influencing the consumer finance segment result in higher net charge-off ratios in future periods, the consumer finance segment may need to increase the level of its allowance for credit losses through additional provisions for credit losses, which could negatively affect future earnings of the consumer finance segment.

Current wording

The consumer finance segment’s focus has included “non-prime” borrowers and, therefore, the anticipated rates of delinquencies, defaults, repossessions and losses on the consumer finance loans are higher than those experienced in the general automobile finance industry and could be more dramatically affected by changes in general economic conditions. Changes in economic conditions may also affect consumer demand for used automobiles and values of automobiles securing outstanding loans, due to changes in demand or changes in levels of inventory of used automobiles, which may directly affect the amount of a loss incurred by the consumer finance segment in the event of default. While we manage the higher risk inherent in loans made to “non-prime” borrowers through the underwriting criteria, portfolio management and collection methods employed by the consumer finance segment, we cannot guarantee that these criteria or methods will afford adequate protection against these risks. With the consumer finance segment’s scorecard model for purchasing loan contracts, the credit-worthiness of borrowers at origination has improved for automobile loans purchased and the level of credit losses experienced has decreased relative to long-term historical averages. We cannot provide any assurance that the consumer finance segment’s net charge-off ratio will not increase in future periods. However, we believe that the current allowance for credit losses is adequate to reflect the net amount expected to be collected on existing consumer finance segment loans that may become uncollectible. If factors influencing the consumer finance segment result in higher net charge-off ratios in future periods, the consumer finance segment may need to increase the level of its allowance for credit losses through additional provisions for credit losses, which could negatively affect future earnings of the consumer finance segment.

Previous wording

At September 30, 2024, the Corporation had total assets of $2.6 billion, an increase of $112.4 million since December 31, 2023. The increase was attributable primarily to growth in loans held for investment and loans held for sale, funded by maturities and paydowns of available for sale securities, increases in deposits, additional borrowings, and deployment of cash on hand. The significant components of the Corporation’s Consolidated Balance Sheets are discussed below.

Current wording

At March 31, 2025, the Corporation had total assets of $2.6 billion, an increase of $49.2 million since December 31, 2024. The increase was attributable primarily to growth in loans held for investment, available for sale securities, interest-bearing deposits in other banks and loans held for sale, funded by growth in deposits. The significant components of the Corporation’s Consolidated Balance Sheets are discussed below.

Previous wording

Tables 16, 17 and 18 present information pertaining to the composition of loans held for investment, the composition of commercial real estate loans, and the maturity/repricing of certain loans held for investment, respectively.

Current wording

Tables 17, 18 and 19 present information pertaining to the composition of loans held for investment, the composition of commercial real estate and construction commercial real estate loans, and the maturity/repricing of certain loans held for investment, respectively.

Previous wording

The increase in total loans from December 31, 2023 to September 30, 2024 was due primarily to growth in commercial real estate construction, commercial real estate, residential mortgage lending, consumer real estate construction, and equity lines at the community banking segment and an increase in automobile loans at the consumer finance segment.

Current wording

During the first quarter of 2025, loans held for investment increased $22.9 million to $1.94 billion at March 31, 2025 due primarily to growth in commercial real estate loans, builder lines and equity lines at the community banking segment, partially offset by a decrease in commercial real estate construction loans at the community banking segment and a decrease in loans at the consumer finance segment.