C & F FINANCIAL CORP (Form: 10-Q, Received: 05/08/2019 15:23:45)

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 March 31, 2019


☐	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.)

802 Main Street West Point, VA	23181
(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)

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, 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 ☒

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

At May 7, 2019, the latest practicable date for determination, 3,469,827 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 – March 31, 2019 (unaudited) and December 31, 2018	3

	Consolidated Statements of Income (unaudited) – Three months ended March 31, 2019 and 2018	4

	Consolidated Statements of Comprehensive Income (unaudited) – Three months ended March 31, 2019 and 2018	5

	Consolidated Statements of Equity (unaudited) – Three months ended March 31, 2019 and 2018	6

	Consolidated Statements of Cash Flows (unaudited) – Three months ended March 31, 2019 and 2018	7

	Notes to Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51

Item 4.	Controls and Procedures	51

PART II - Other Information

Item 1A.	Risk Factors	52

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52

Item 6.	Exhibits	53

	Signatures	54

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Part I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENT S

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except for per share amounts)


	March 31,		December 31,
	2019		2018
Assets		(unaudited)		*
Cash and due from banks	$	11,777	$	14,138
Interest-bearing deposits in other banks		125,674		100,875
Total cash and cash equivalents		137,451		115,013
Securities—available for sale at fair value, amortized cost of $208,925 and $216,650, respectively		209,007		214,910
Loans held for sale, at fair value		36,035		41,895
Loans, net of allowance for loan losses of $33,589 and $34,023, respectively		1,042,052		1,028,097
Restricted stock, at cost		3,257		3,247
Corporate premises and equipment, net		36,934		37,100
Other real estate owned, net of valuation allowance of $57 and $57, respectively		246		246
Accrued interest receivable		7,267		7,436
Goodwill		14,425		14,425
Core deposit and other amortizable intangible assets, net		1,065		1,142
Bank-owned life insurance		16,162		16,065
Net deferred tax asset		11,838		12,193
Other assets		33,621		29,642
Total assets	$	1,549,360	$	1,521,411

Liabilities
Deposits
Noninterest-bearing demand deposits	$	276,275	$	271,360
Savings and interest-bearing demand deposits		547,769		563,741
Time deposits		378,150		346,560
Total deposits		1,202,194		1,181,661
Short-term borrowings		17,024		14,917
Long-term borrowings		119,529		119,529
Trust preferred capital notes		25,254		25,245
Accrued interest payable		1,166		920
Other liabilities		29,293		27,181
Total liabilities		1,394,460		1,369,453

Commitments and contingent liabilities (Note 10)

Equity
Common stock ($1.00 par value, 8,000,000 shares authorized, 3,476,799 and 3,497,122 shares issued and outstanding, respectively, includes 139,995 and 139,455 of unvested shares, respectively)		3,337		3,358
Additional paid-in capital		11,362		12,752
Retained earnings		143,003		140,520
Accumulated other comprehensive loss, net		(3,292)		(4,672)
Equity attributable to C&F Financial Corporation		154,410		151,958
Noncontrolling interest		490		—
Total equity		154,900		151,958
Total liabilities and equity	$	1,549,360	$	1,521,411

* Derived from audited consolidated financial statements.

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in thousands, except for per share amounts)


	Three Months Ended March 31,
	2019		2018
Interest income
Interest and fees on loans	$	20,920	$	20,817
Interest on interest-bearing deposits and federal funds sold		589		464
Interest and dividends on securities
U.S. government agencies and corporations		101		87
Mortgage-backed securities		611		546
Tax-exempt obligations of states and political subdivisions		583		715
Taxable obligations of states and political subdivisions		93		71
Other		54		44
Total interest income		22,951		22,744
Interest expense
Savings and interest-bearing deposits		602		364
Time deposits		1,306		956
Borrowings		1,111		973
Trust preferred capital notes		285		283
Total interest expense		3,304		2,576
Net interest income		19,647		20,168
Provision for loan losses		2,395		3,300
Net interest income after provision for loan losses		17,252		16,868
Noninterest income
Gains on sales of loans		2,136		2,239
Service charges on deposit accounts		918		1,049
Other service charges and fees		1,068		1,060
Net gains on maturities and calls of available for sale securities		4		5
Wealth management services income, net		449		425
Interchange income		958		906
Other		1,570		762
Total noninterest income		7,103		6,446
Noninterest expenses
Salaries and employee benefits		11,907		10,733
Occupancy		2,190		2,031
Other		5,580		5,775
Total noninterest expenses		19,677		18,539
Income before income taxes		4,678		4,775
Income tax expense		907		883
Net income		3,771		3,892
Less net income attributable to noncontrolling interest		—		—
Net income attributable to C&F Financial Corporation	$	3,771	$	3,892
Net income per share - basic and diluted	$	1.08	$	1.11

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)


	Three Months Ended March 31,
	2019		2018
Net income	$	3,771	$	3,892
Other comprehensive income (loss):
Defined benefit plan:
Reclassification of recognized net actuarial losses into net income 1		42		29
Related income tax effects		(9)		(6)
Amortization of prior service credit into net income 1		(17)		(15)
Related income tax effects		4		3
Defined benefit plan, net of tax		20		11

Cash flow hedges:
Unrealized holding (losses) gains arising during the period		(108)		212
Related income tax effects		28		(55)
Cash flow hedges, net of tax		(80)		157

Securities available for sale:
Unrealized holding gains (losses) arising during the period		1,826		(2,538)
Related income tax effects		(383)		533
Reclassification of net realized gains into net income 2		(4)		(5)
Related income tax effects		1		1
Securities available for sale, net of tax		1,440		(2,009)
Other comprehensive income (loss), net of tax		1,380		(1,841)
Comprehensive income		5,151		2,051
Less comprehensive income attributable to noncontrolling interest		—		—
Comprehensive income attributable to C&F Financial Corporation	$	5,151	$	2,051

These items are included in the computation of net periodic benefit cost and are included in “Noninterest income-Other” on the Consolidated Statements of Income. See “Note 7: Employee Benefit Plans,” for additional information.

These items are included in “Net gains on maturities and calls of available for sale securities” on the Consolidated Statements of Income.

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(Dollars in thousands, except for per share amounts)


	Attributable to C&F Financial Corporation
							Accumulated
			Additional				Other
	Common		Paid - In		Retained		Comprehensive		Noncontrolling		Total
	Stock		Capital		Earnings		Income (Loss)		Interest		Equity
Balance December 31, 2018	$	3,358	$	12,752	$	140,520	$	(4,672)	$	—	$	151,958
Comprehensive income:
Net income		—		—		3,771		—		—		3,771
Other comprehensive income		—		—		—		1,380		—		1,380
Issuance of noncontrolling interest		—		—		—		—		490		490
Share-based compensation		—		457		—		—		—		457
Restricted stock vested		15		(15)		—		—		—		—
Common stock issued		1		35		—		—		—		36
Common stock purchased		(37)		(1,867)		—		—		—		(1,904)
Cash dividends declared ($0.37 per share)		—		—		(1,288)		—		—		(1,288)
Balance March 31, 2019	$	3,337	$	11,362	$	143,003	$	(3,292)	$	490	$	154,900


	Attributable to C&F Financial Corporation
							Accumulated
			Additional				Other
	Common		Paid - In		Retained		Comprehensive		Noncontrolling		Total
	Stock		Capital		Earnings		Loss		Interest		Equity
Balance December 31, 2017	$	3,358	$	12,800	$	127,431	$	(1,887)	$	—	$	141,702
Comprehensive income:
Net income		—		—		3,892		—		—		3,892
Other comprehensive loss		—		—		—		(1,841)		—		(1,841)
Share-based compensation		—		319		—		—		—		319
Restricted stock vested		14		(14)		—		—		—		—
Common stock issued		1		35		—		—		—		36
Common stock purchased		(4)		(215)		—		—		—		(219)
Cash dividends declared ($0.34 per share)		—		—		(1,190)		—		—		(1,190)
Balance March 31, 2018	$	3,369	$	12,925	$	130,133	$	(3,728)	$	—	$	142,699

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)


	Three Months Ended March 31,
	2019		2018
Operating activities:
Net income	$	3,771	$	3,892
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		916		750
Provision for loan losses		2,395		3,300
Provision for indemnifications		—		36
Share-based compensation		457		319
Pension expense		141		135
Pension contribution		—		(3,000)
Net accretion of certain acquisition-related discounts		(365)		(894)
Accretion of discounts and amortization of premiums on securities, net		410		445
Amortization of intangible assets		78		134
Net realized gains on maturities and calls of securities available for sale		(4)		(5)
Net realized gains on sale of corporate premises and equipment		(10)		(27)
Income from bank-owned life insurance		(83)		(81)
Origination of loans held for sale		(138,705)		(143,903)
Proceeds from sales of loans held for sale		146,701		161,872
Gains on sales of loans held for sale		(2,136)		(2,239)
Change in other assets and liabilities:
Accrued interest receivable		169		400
Other assets		1,138		173
Accrued interest payable		246		7
Other liabilities		(3,322)		795
Net cash provided by operating activities		11,797		22,109
Investing activities:
Proceeds from maturities and calls of securities available for sale and payments on mortgage-backed securities		15,657		12,735
Purchases of securities available for sale		(8,338)		(15,150)
Net purchases of restricted stock		(10)		(55)
Purchases of loans held for investment by non-bank affiliates		(36,854)		(31,886)
Repayments on loans held for investment by non-bank affiliates		30,599		28,121
Net (increase) decrease in retail banking loans held for investment		(9,740)		886
Purchases of corporate premises and equipment		(753)		(621)
Proceeds from sales of corporate premises and equipment		13		—
Net cash used in investing activities		(9,426)		(5,970)
Financing activities:
Net (decrease) increase in demand and savings deposits		(11,057)		8,260
Net increase in time deposits		31,590		6,404
Net increase (decrease) in short-term borrowings		2,107		(880)
Issuance of common stock		36		36
Purchase of common stock, excluding shares withheld to pay taxes		(1,667)		—
Issuance of noncontrolling interest		490		—
Cash dividends paid		(1,288)		(1,190)
Other financing activities		(144)		(144)
Net cash provided by financing activities		20,067		12,486
Net increase in cash and cash equivalents		22,438		28,625
Cash and cash equivalents at beginning of period		115,013		119,423
Cash and cash equivalents at end of period	$	137,451	$	148,048
Supplemental cash flow disclosures:
Interest paid	$	3,049	$	2,560
Income taxes paid		8		8
Supplemental disclosure of noncash investing and financing activities:
Value of shares withheld at vesting for employee taxes	$	237	$	219

See notes to consolidated financial statements.

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NOTE S TO CONSOLIDATED 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, 2018.

The unaudited consolidated financial statements include the accounts of C&F Financial Corporation (the Corporation) and its wholly-owned subsidiary, Citizens and Farmers Bank (the Bank or C&F Bank). All significant intercompany accounts and transactions have been eliminated in consolidation. In addition, the Corporation owns 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 C&F Financial Corporation and Subsidiary 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, was formed to originate and sell residential mortgages 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., was organized in July 1999, for the primary purpose of owning an equity interest in an independent insurance agency that operates in Virginia and North Carolina. CVB Title Services, Inc. was organized for the primary purpose of owning an equity interest in a full service title and settlement agency. 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, the allowance for indemnifications, impairment of loans, impairment of securities, the valuation of other real estate owned (OREO), the projected benefit obligation under the defined benefit pension plan, the valuation of deferred taxes and goodwill 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.

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

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(1) interest rate lock commitments (IRLCs) on mortgage loans that will be sold in the secondary market on a best efforts basis and the related forward commitments to sell mortgage loans, (2) interest rate swaps with certain qualifying commercial loan customers and dealer counterparties and (3) interest rate swaps that qualify and are designated as cash flow hedges on the Corporation’s trust preferred capital notes. Because the IRLCs, forward sales commitments and interest rate swaps with loan customers and dealer counterparties are not designated as hedging instruments, adjustments to reflect unrealized gains and losses resulting from changes in the fair value of these instruments are reported as noninterest income or noninterest expense, as applicable. 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. The Corporation’s derivative financial instruments are described more fully in Note 11.

Leases: The Corporation recognizes a lease liability and a right-of-use asset in connection with leases in which it is a lessee, except for leases with a term of twelve months or less. A lease liability represents the Corporation’s obligation to make future payments under lease contracts, and a right-of-use asset represents the Corporation’s right to control the use of the underlying property during the lease term. Lease liabilities and right-of-use assets are recognized upon commencement of a lease and measured as the present value of lease payments over the lease term, discounted at the incremental borrowing rate of the lessee. The Corporation has elected not to separate lease and nonlease components within the same contract and instead to account for the entire contract as a lease.

Share-Based Compensation: Share-based compensation expense, net of forfeitures, for the first quarter of 2019 was $457,000 ($290,000 after tax) for restricted stock granted during 2014 through 2019. As of March 31, 2019, there was $3.30 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 three months of 2019 and 2018 is presented below:


	2019
		Weighted-
		Average
		Grant Date
	Shares	Fair Value
Unvested, December 31, 2018	139,455	$	45.75
Granted	16,100		51.73
Vested	(15,490)		41.31
Forfeited	(70)		60.95
Unvested, March 31, 2019	139,995		46.92


	2018
		Weighted-
		Average
		Grant Date
	Shares	Fair Value
Unvested, December 31, 2017	137,880	$	43.52
Granted	11,210		58.40
Vested	(14,125)		40.05
Forfeited	(1,615)		42.78
Unvested, March 31, 2018	133,350		45.14

Recently Adopted Accounting Pronouncements:

On January 1, 2019, the Corporation adopted Accounting Standards Update (ASU) 2016-02, “Leases (Topic 842)” and related amendments (collectively, ASC 842), which resulted in recognition of a lease liability and right-of-use asset in connection with leases in which the Corporation is the lessee. Under ASC 842, lessor accounting is largely unchanged. The Corporation elected an optional transition method to apply ASC 842 as of the adoption date on a modified retrospective basis. Periods prior to January 1, 2019 have not been restated. Upon adoption, the Corporation recorded a lease liability

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of approximately $3.14 million for its remaining payment obligations as of January 1, 2019 for leases in effect at that time, excluding leases with an original term of twelve months or less, and a corresponding right-of-use asset. All of the Corporation’s existing leases upon adoption of ASC 842 were classified as operating leases based on the classification of each lease under previous GAAP; classification of these leases was not reconsidered upon adoption of ASC 842. Refer to Note 5 for further information about the Corporation’s leases.

Recent Significant Accounting Pronouncements:

In June 2016, the Financial Accounting Standards Board (FASB) issued 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 ” (collectively, ASC 326). ASC 326 introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also 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. For public business entities that are SEC filers, the new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The amendments 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, and expects to develop and refine an approach to estimating the allowance for credit losses during 2019. 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 shareholders’ 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. The Corporation has not yet determined an estimate of the effect of these changes. 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 January 2017, the FASB issued ASU 2017-04, “ Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, ” which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for public business entities that are SEC filers for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The Corporation does not expect the adoption of ASU 2017-04 to have a material effect on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” These amendments modify the disclosure requirements in Topic 820 to add disclosures regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty. Certain disclosure requirements in Topic 820 are also removed or modified. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Certain of the amendments are to be applied prospectively while others are to be applied retrospectively. Early adoption is permitted. The Corporation does not expect the adoption of ASU 2018-13 to have a material effect on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, “Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” These

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amendments modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. Certain disclosure requirements have been deleted while the following disclosure requirements have been added: the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The amendments also clarify the disclosure requirements regarding the projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets and the accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets. The amendments are effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Corporation does not expect the adoption of ASU 2018-14 to have a material effect 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.

NOTE 2: Securities

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


	March 31, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
U.S. government agencies and corporations	$	17,650	$	—	$	(256)	$	17,394
Mortgage-backed securities		101,159		279		(848)		100,590
Obligations of states and political subdivisions		90,116		1,005		(98)		91,023
	$	208,925	$	1,284	$	(1,202)	$	209,007


	December 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
U.S. government agencies and corporations	$	18,008	$	1	$	(536)	$	17,473
Mortgage-backed securities		106,787		85		(1,889)		104,983
Obligations of states and political subdivisions		91,855		840		(241)		92,454
	$	216,650	$	926	$	(2,666)	$	214,910

The amortized cost and estimated fair value of securities at March 31, 2019, 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.


	March 31, 2019
	Amortized
(Dollars in thousands)	Cost		Fair Value
Due in one year or less	$	47,052	$	47,097
Due after one year through five years		141,597		141,414
Due after five years through ten years		15,447		15,513
Due after ten years		4,829		4,983
	$	208,925	$	209,007

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The following table presents the gross realized gains and losses on and the proceeds from the maturities, calls and paydowns of securities. There were no sales of securities during the periods presented.


	Three Months Ended March 31,
(Dollars in thousands)	2019		2018
Realized gains from maturities and calls of securities:
Gross realized gains	$	4	$	5
Gross realized losses		—		—
Net realized gains	$	4	$	5
Proceeds from maturities, calls and paydowns of securities	$	15,657	$	12,735

The Corporation pledges securities primarily to secure public deposits and repurchase agreements. Securities with an aggregate amortized cost of $103.41 million and aggregate fair value of $103.33 million were pledged at March 31, 2019. Securities with an aggregate amortized cost of $110.81 million and an aggregate fair value of $109.83 million were pledged at December 31, 2018.

Securities in an unrealized loss position at March 31, 2019, 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	$	—	$	—	$	16,005	$	256	$	16,005	$	256
Mortgage-backed securities		1,754		1		67,941		847		69,695		848
Obligations of states and political subdivisions		1,899		1		18,062		97		19,961		98
Total temporarily impaired securities	$	3,653	$	2	$	102,008	$	1,200	$	105,661	$	1,202

There were 180 debt securities totaling $105.7 million considered temporarily impaired at March 31, 2019. The primary cause of the temporary impairments in the Corporation's investments in debt securities was fluctuations in interest rates as debt securities, especially those purchased prior to 2018, have declined in value as interest rates have risen. 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. At March 31, 2019, approximately 97 percent of the Corporation's obligations of states and political subdivisions, as measured by market value, were rated “A” or better by Standard & Poor's (S&P) or Moody's Investors Service (Moody’s). Of those in an unrealized loss position, approximately 99 percent were rated “A” or better by S&P or Moody’s, as measured by market value, at March 31, 2019. For the approximately one percent not rated “A” or better, as measured by market value at March 31, 2019, the Corporation considers these to meet regulatory credit quality standards, meaning that the securities have low risk of default by the obligor and the full and timely repayment of principal and interest is expected over the expected life of the investment. Because 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 unrealized losses, the Corporation does not consider these investments to be other-than-temporarily impaired at March 31, 2019 and no other-than-temporary impairment loss has been recognized in net income.

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Securities in an unrealized loss position at December 31, 2018, 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	$	997	$	1	$	15,725	$	535	$	16,722	$	536
Mortgage-backed securities		17,934		132		72,830		1,757		90,764		1,889
Obligations of states and political subdivisions		9,492		29		20,555		212		30,047		241
Total temporarily impaired securities	$	28,423	$	162	$	109,110	$	2,504	$	137,533	$	2,666

The Corporation’s investment in restricted stock totaled $3.26 million at March 31, 2019 and consisted of Federal Home Loan Bank (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 March 31, 2019 and no impairment has been recognized.

NOTE 3: Loans

Major classifications of loans are summarized as follows:


	March 31,		December 31,
(Dollars in thousands)	2019		2018
Real estate – residential mortgage	$	183,697	$	184,901
Real estate – construction 1		65,588		54,461
Commercial, financial and agricultural 2		459,820		455,935
Equity lines		54,111		55,660
Consumer		12,833		15,009
Consumer finance		299,592		296,154
		1,075,641		1,062,120
Less allowance for loan losses		(33,589)		(34,023)
Loans, net	$	1,042,052	$	1,028,097

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

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

Consumer loans included $199,000 and $275,000 of demand deposit overdrafts at March 31, 2019 and December 31, 2018, respectively.

The outstanding principal balance and the carrying amount of loans acquired pursuant to the Corporation's acquisition of Central Virginia Bank (CVB) on October 1, 2013 (or acquired loans) that were recorded at fair value at the acquisition date and are included in the Consolidated Balance Sheets are as follows:

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	March 31, 2019						December 31, 2018
	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	$	9,537	$	37,687	$	47,224	$	9,734	$	38,768	$	48,502
Carrying amount
Real estate – residential mortgage	$	280	$	8,543	$	8,823	$	284	$	8,823	$	9,107
Commercial, financial and agricultural 1		1,489		18,110		19,599		1,461		18,982		20,443
Equity lines		90		9,224		9,314		90		9,063		9,153
Consumer		—		5		5		—		6		6
Total acquired loans	$	1,859	$	35,882	$	37,741	$	1,835	$	36,874	$	38,709

Includes acquired loans classified by the Corporation as commercial real estate lending, land acquisition and development lending, builder line lending and commercial business lending.

The following table presents a summary of the change in the accretable yield of the PCI loan portfolio:


	Three Months Ended March 31,
(Dollars in thousands)	2019		2018
Accretable yield, balance at beginning of period	$	5,987	$	7,304
Accretion		(469)		(977)
Reclassification of nonaccretable difference due to improvement in expected cash flows		256		871
Other changes, net		162		(398)
Accretable yield, balance at end of period	$	5,936	$	6,800

Loans on nonaccrual status were as follows:


	March 31,		December 31,
(Dollars in thousands)	2019		2018
Real estate – residential mortgage	$	701	$	594
Commercial, financial and agricultural:
Commercial business lending		29		24
Equity lines		760		883
Consumer		124		—
Consumer finance		520		712
Total loans on nonaccrual status	$	2,134	$	2,213

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The past due status of loans as of March 31, 2019 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	$	969	$	—	$	136	$	1,105	$	280	$	182,312	$	183,697	$	6
Real estate – construction:
Construction lending		—		—		—		—		—		53,319		53,319		—
Consumer lot lending		—		—		—		—		—		12,269		12,269		—
Commercial, financial and agricultural:
Commercial real estate lending		64		—		315		379		1,489		301,212		303,080		315
Land acquisition and development lending		—		—		—		—		—		45,245		45,245		—
Builder line lending		—		—		—		—		—		29,180		29,180		—
Commercial business lending		45		—		29		74		—		82,241		82,315		—
Equity lines		299		122		619		1,040		90		52,981		54,111		—
Consumer		52		—		—		52		—		12,781		12,833		7
Consumer finance		6,573		870		520		7,963		—		291,629		299,592		—
Total	$	8,002	$	992	$	1,619	$	10,613	$	1,859	$	1,063,169	$	1,075,641	$	328

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 $616,000, 30-59 days past due of $90,000, 60-89 days past due of $122,000 and 90+ days past due of $1.31 million.

The past due status of loans as of December 31, 2018 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	$	1,221	$	—	$	37	$	1,258	$	284	$	183,359	$	184,901	$	9
Real estate – construction:
Construction lending		—		—		—		—		—		42,051		42,051		—
Consumer lot lending		—		—		—		—		—		12,410		12,410		—
Commercial, financial and agricultural:
Commercial real estate lending		—		—		315		315		1,461		309,057		310,833		315
Land acquisition and development lending		—		—		—		—		—		43,404		43,404		—
Builder line lending		—		—		—		—		—		31,201		31,201		—
Commercial business lending		163		19		24		206		—		70,291		70,497		—
Equity lines		46		584		325		955		90		54,615		55,660		—
Consumer		31		—		—		31		—		14,978		15,009		—
Consumer finance		11,419		1,965		712		14,096		—		282,058		296,154		—
Total	$	12,880	$	2,568	$	1,413	$	16,861	$	1,835	$	1,043,424	$	1,062,120	$	324

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 $458,000, 30-59 days past due of $97,000, 60‑89 days past due of $560,000 and 90+ days past due of $1.10 million.

There were no loan modifications that were classified as troubled debt restructurings (TDRs) during the three months ended March 31, 2019 and 2018. 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 months ended March 31, 2019 and 2018.

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Impaired loans, which included TDRs of $4.68 million, and the related allowance at March 31, 2019 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	$	3,134	$	1,273	$	1,760	$	127	$	3,099	$	35
Commercial, financial and agricultural:
Commercial real estate lending		1,752		3		1,710		69		1,768		23
Builder line lending		437		437		—		—		437		7
Equity lines		225		30		187		187		217		—
Consumer		131		—		128		124		129		—
Total	$	5,679	$	1,743	$	3,785	$	507	$	5,650	$	65

Impaired loans, which included TDRs of $5.45 million, and the related allowance at December 31, 2018 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	$	3,057	$	1,288	$	1,677	$	92	$	3,056	$	142
Commercial, financial and agricultural:
Commercial real estate lending		2,468		1,498		927		10		2,653		132
Commercial business lending		33		25		—		—		26		—
Equity lines		365		31		326		326		359		2
Consumer		5		—		5		—		5		—
Total	$	5,928	$	2,842	$	2,935	$	428	$	6,099	$	276

NOTE 4: Allowance for Loan Losses

The following table presents the changes in the allowance for loan losses by major classification during the three months ended March 31, 2019:


	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, 2018	$	2,246	$	727	$	6,688	$	1,106	$	257	$	22,999	$	34,023
Provision charged (credited) to operations		(47)		114		(25)		(205)		163		2,395		2,395
Loans charged off		—		—		—		—		(76)		(3,890)		(3,966)
Recoveries of loans previously charged off		5		—		1		—		42		1,089		1,137
Balance at March 31, 2019	$	2,204	$	841	$	6,664	$	901	$	386	$	22,593	$	33,589

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The following table presents the changes in the allowance for loan losses by major classification during the three months ended March 31, 2018:


	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, 2017	$	2,371	$	605	$	7,478	$	688	$	231	$	24,353	$	35,726
Provision charged (credited) to operations		(16)		251		(238)		—		3		3,300		3,300
Loans charged off		—		—		(2)		—		(71)		(4,583)		(4,656)
Recoveries of loans previously charged off		22		—		5		—		48		1,155		1,230
Balance at March 31, 2018	$	2,377	$	856	$	7,243	$	688	$	211	$	24,225	$	35,600

The following table presents, as of March 31, 2019, the balance of the allowance for loan losses and the balance of 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	$	127	$	—	$	69	$	187	$	124	$	—	$	507
Collectively evaluated for impairment		2,077		841		6,595		714		262		22,593		33,082
Acquired loans - PCI		—		—		—		—		—		—		—
Total allowance	$	2,204	$	841	$	6,664	$	901	$	386	$	22,593	$	33,589
Loans:
Individually evaluated for impairment	$	3,033	$	—	$	2,150	$	217	$	128	$	—	$	5,528
Collectively evaluated for impairment		180,384		65,588		456,181		53,804		12,705		299,592		1,068,254
Acquired loans - PCI		280		—		1,489		90		—		—		1,859
Total loans	$	183,697	$	65,588	$	459,820	$	54,111	$	12,833	$	299,592	$	1,075,641

The following table presents, as of December 31, 2018, 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	$	92	$	—	$	10	$	326	$	—	$	—	$	428
Collectively evaluated for impairment		2,154		727		6,678		780		257		22,999		33,595
Acquired loans - PCI		—		—		—		—		—		—		—
Total allowance	$	2,246	$	727	$	6,688	$	1,106	$	257	$	22,999	$	34,023
Loans:
Individually evaluated for impairment	$	2,965	$	—	$	2,450	$	357	$	5	$	—	$	5,777
Collectively evaluated for impairment		181,652		54,461		452,024		55,213		15,004		296,154		1,054,508
Acquired loans - PCI		284		—		1,461		90		—		—		1,835
Total loans	$	184,901	$	54,461	$	455,935	$	55,660	$	15,009	$	296,154	$	1,062,120

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Loans by credit quality indicators as of March 31, 2019 were as follows:


			Special				Substandard
(Dollars in thousands)	Pass		Mention		Substandard		Nonaccrual		Total 1
Real estate – residential mortgage	$	179,808	$	2,210	$	978	$	701	$	183,697
Real estate – construction:
Construction lending		53,319		—		—		—		53,319
Consumer lot lending		12,269		—		—		—		12,269
Commercial, financial and agricultural:
Commercial real estate lending		299,627		3,008		445		—		303,080
Land acquisition and development lending		35,151		10,094		—		—		45,245
Builder line lending		28,743		—		437		—		29,180
Commercial business lending		81,735		551		—		29		82,315
Equity lines		52,895		409		47		760		54,111
Consumer		12,697		9		3		124		12,833
	$	756,244	$	16,281	$	1,910	$	1,614	$	776,049

At March 31, 2019, the Corporation did not have any loans classified as Doubtful or Loss.


			Non-
(Dollars in thousands)	Performing		Performing		Total
Consumer finance	$	299,072	$	520	$	299,592

Loans by credit quality indicators as of December 31, 2018 were as follows:


			Special				Substandard
(Dollars in thousands)	Pass		Mention		Substandard		Nonaccrual		Total 1
Real estate – residential mortgage	$	180,232	$	2,832	$	1,243	$	594	$	184,901
Real estate – construction:
Construction lending		42,051		—		—		—		42,051
Consumer lot lending		12,410		—		—		—		12,410
Commercial, financial and agricultural:
Commercial real estate lending		306,578		3,801		454		—		310,833
Land acquisition and development lending		33,156		10,248		—		—		43,404
Builder line lending		31,201		—		—		—		31,201
Commercial business lending		69,897		576		—		24		70,497
Equity lines		54,289		389		99		883		55,660
Consumer		14,998		5		6		—		15,009
	$	744,812	$	17,851	$	1,802	$	1,501	$	765,966

At December 31, 2018, the Corporation did not have any loans classified as Doubtful or Loss.


			Non-
(Dollars in thousands)	Performing		Performing		Total
Consumer finance	$	295,442	$	712	$	296,154

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NOTE 5: Leases

The Corporation’s leases comprise primarily leases of real estate and office equipment in which the Corporation is the lessee, and all of which are classified as operating leases. Lease cost for the three months ended March 31, 2019 is set forth in the table below.


	Three Months Ended
(Dollars in thousands)	March 31, 2019
Operating lease cost	$	414
Short-term lease cost		39
Variable lease cost		14
Total lease cost	$	467

Variable lease payments primarily represent payments for common area maintenance related to real estate leases and taxes and fees related to equipment leases.

Cash paid for amounts included in the measurement of lease liabilities during the three months ended March 31, 2019 was $306,000. As of March 31, the weighted average remaining lease term and discount rate for the Corporation’s leases were 3.0 years and 3.3%, respectively. Right-of-use assets of $3.67 million were included in other assets and lease liabilities of $3.68 million were included in other liabilities as of March 31, 2019. During the three months ended March 31, 2019, the Corporation obtained right-of-use assets in exchange for lease liabilities of $821,000.

The Corporation adopted ASC 842 effective January 1, 2019. Prior to January 1, 2019, the Corporation measured lease expense in accordance with FASB Accounting Standards Codification (ASC) Topic 840. During the three months ended March 31, 2018, the Corporation recognized lease expense of $439,000.

Certain of the Corporation’s leases contain options to extend the lease term beyond the initial term. Options to extend the lease term are recognized as part of the Corporation’s lease liabilities and right-of-use assets at the commencement of a lease to the extent the Corporation is reasonably certain to exercise such options.

Maturities of the Corporation’s lease liabilities are set forth in the table below.


	As of
(Dollars in thousands)	March 31, 2019
2019	$	1,131
2020		1,392
2021		758
2022		236
2023		109
Thereafter		249
Total		3,875
Imputed interest		(193)
Lease liabilities	$	3,682

The table above excludes payments of $4.94 million related to two lease agreements that have been executed where the Corporation has not obtained control of the real estate properties under lease as of March 31, 2019 and has therefore not recognized a lease liability or right-of-use asset.

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

Equity and Noncontrolling Interest

During the first three months of 2019, the Corporation repurchased 32,407 shares of its common stock for an aggregate cost of $1.67 million under a share repurchase program authorized by its Board of Directors. Additionally during the first

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three months of 2019 and 2018, the Corporation withheld 4,641 shares and 3,737 shares of its common stock, respectively, from employees to satisfy tax withholding obligations upon vesting of restricted stock.

In the first quarter of 2019, C&F Select LLC, a subsidiary of C&F Mortgage, issued a 49 percent ownership interest to an unrelated third party in exchange for $490,000. The holder of this noncontrolling interest financed the investment through a loan obtained from C&F Bank.

Accumulated Other Comprehensive Loss

The following table presents the cumulative balances of the components of accumulated other comprehensive loss, net of deferred taxes of $864,000 and $1.23 million as of March 31, 2019 and December 31, 2018, respectively.


	March 31,		December 31,
(Dollars in thousands)	2019		2018
Net unrealized gains (losses) on securities	$	65	$	(1,375)
Net unrecognized gains on cash flow hedges		135		215
Net unrecognized losses on defined benefit plan		(3,492)		(3,512)
Total accumulated other comprehensive loss	$	(3,292)	$	(4,672)

Earnings Per Share (EPS)

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


	Three Months Ended March 31,
(Dollars in thousands)	2019		2018
Net income attributable to C&F Financial Corporation	$	3,771	$	3,892
Weighted average shares outstanding—basic and diluted		3,484,592		3,501,164

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 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 March 31,
(Dollars in thousands)	2019		2018
Components of net periodic benefit cost:
Service cost, included in salaries and employee benefits	$	293	$	306

Other components of net periodic benefit cost:
Interest cost		153		133
Expected return on plan assets		(330)		(318)
Amortization of prior service credit		(17)		(15)
Recognized net actuarial losses		42		29
Other components of net periodic benefit cost, included in other noninterest income		(152)		(171)

Net periodic benefit cost	$	141	$	135

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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).

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 March 31, 2019 and December 31, 2018, the Corporation’s entire investment securities portfolio was comprised of securities 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) and Thomson Reuters Pricing Service (TRPS). 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. TRPS provides evaluated prices for the Corporation’s U.S. government agencies and corporations and mortgage-backed categories of securities. Fixed-rate callable securities of the U.S. government agencies and corporations category 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. Fixed-rate securities issued by the Small Business Association in the U.S. government agencies and corporations category are individually evaluated based upon a hierarchy of security specific information and market data regarding that security or securities with similar characteristics. 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 a relative mortgage-backed to-be-announced (TBA) or other benchmark price. TBA 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

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evaluation is determined using an option adjusted spread and prepayment model based on volatility-driven, multi-dimensional spread tables.

Loans held for sale (LHFS). 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.

Derivative asset - 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.

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


	March 31, 2019
	Fair Value Measurements Using						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	$	—	$	17,394	$	—	$	17,394
Mortgage-backed securities		—		100,590		—		100,590
Obligations of states and political subdivisions		—		91,023		—		91,023
Total securities available for sale		—		209,007		—		209,007
Loans held for sale		—		36,035		—		36,035
Derivative asset - IRLC		—		1,396		—		1,396
Derivative asset - interest rate swaps on loans		—		1,378		—		1,378
Derivative asset - cash flow hedges		—		182		—		182
Total assets	$	—	$	247,998	$	—	$	247,998

Liabilities:
Derivative liability - interest rate swaps on loans		—		1,378		—		1,378
Total liabilities	$	—	$	1,378	$	—	$	1,378

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	December 31, 2018
	Fair Value Measurements Using						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	$	—	$	17,473	$	—	$	17,473
Mortgage-backed securities		—		104,983		—		104,983
Obligations of states and political subdivisions		—		92,454		—		92,454
Total securities available for sale		—		214,910		—		214,910
Loans held for sale		—		41,895		—		41,895
Derivative asset - IRLC		—		636		—		636
Derivative asset - interest rate swaps on loans		—		1,607		—		1,607
Derivative asset - cash flow hedges		—		289		—		289
Total assets	$	—	$	259,337	$	—	$	259,337

Liabilities:
Derivative liability - interest rate swaps on loans		—		1,607		—		1,607
Total liabilities	$	—	$	1,607	$	—	$	1,607

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.

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 sell if valuations

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

The following table presents the balances of assets measured at fair value on a nonrecurring basis.


	March 31, 2019
	Fair Value Measurements Using						Assets at Fair
(Dollars in thousands)	Level 1		Level 2		Level 3		Value
Impaired loans, net	$	—	$	—	$	155	$	155
Other real estate owned, net		—		—		246		246
Total	$	—	$	—	$	401	$	401


	December 31, 2018
	Fair Value Measurements Using						Assets at Fair
(Dollars in thousands)	Level 1		Level 2		Level 3		Value
Impaired loans, net	$	—	$	—	$	102	$	102
Other real estate owned, net		—		—		246		246
Total	$	—	$	—	$	348	$	348

The following table presents quantitative information about Level 3 fair value measurements for financial assets measured at fair value on a nonrecurring basis:


	Fair Value Measurements at March 31, 2019
(Dollars in thousands)	Fair Value		Valuation Technique(s)	Unobservable Inputs	Range of Inputs
Impaired loans, net	$	155	Appraisals	Discount to reflect current market conditions and estimated selling costs	30%-38%
Other real estate owned, net		246	Appraisals	Discount to reflect current market conditions and estimated selling costs	33%-47%
Total	$	401

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.

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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 March 31, 2019 Using						Total Fair
(Dollars in thousands)	Value		Level 1		Level 2		Level 3		Value
Financial assets:
Cash and short-term investments	$	137,451	$	137,451	$	—	$	—	$	137,451
Securities available for sale		209,007		—		209,007		—		209,007
Loans, net		1,042,052		—		—		1,038,191		1,038,191
Loans held for sale		36,035		—		36,035		—		36,035
Derivative asset - IRLC		1,396		—		1,396		—		1,396
Derivative asset - interest rate swaps on loans		1,378		—		1,378		—		1,378
Derivative asset - cash flow hedges		182		—		182		—		182
Bank-owned life insurance		16,162		—		16,162		—		16,162
Accrued interest receivable		7,267		7,267		—		—		7,267
Financial liabilities:
Demand deposits		824,044		824,044		—		—		824,044
Time deposits		378,150		—		375,881		—		375,881
Borrowings		161,807		—		154,451		—		154,451
Derivative liability - interest rate swaps on loans		1,378		—		1,378		—		1,378
Accrued interest payable		1,166		1,166		—		—		1,166


	Carrying		Fair Value Measurements at December 31, 2018 Using						Total Fair
(Dollars in thousands)	Value		Level 1		Level 2		Level 3		Value
Financial assets:
Cash and short-term investments	$	115,013	$	115,013	$	—	$	—	$	115,013
Securities available for sale		214,910		—		214,910		—		214,910
Loans, net		1,028,097		—		—		1,021,145		1,021,145
Loans held for sale		41,895		—		41,895		—		41,895
Derivative asset - IRLC		636		—		636		—		636
Derivative asset - interest rate swaps on loans		1,607		—		1,607		—		1,607
Derivative asset - cash flow hedges		289		—		289		—		289
Bank-owned life insurance		16,065		—		16,065		—		16,065
Accrued interest receivable		7,436		7,436		—		—		7,436
Financial liabilities:
Demand deposits		835,101		835,101		—		—		835,101
Time deposits		346,560		—		343,507		—		343,507
Borrowings		159,691		—		152,015		—		152,015
Derivative liability - interest rate swaps on loans		1,607		—		1,607		—		1,607
Accrued interest payable		920		920		—		—		920

NOTE 9: Business Segments

The Corporation operates in a decentralized fashion in three principal business segments: retail banking, mortgage banking and consumer finance. Revenues from retail banking operations consist primarily of interest earned on loans and investment securities and service charges on deposit accounts. Mortgage banking operating revenues consist principally of gains on sales of loans in the secondary market, loan origination fee income and interest earned on mortgage loans held for sale. Revenues from consumer finance consist primarily of interest earned on purchased retail installment sales contracts.

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The Corporation’s other segment includes a full-service brokerage firm that derives revenues from offering wealth management services and insurance products through third-party service providers and an insurance company that derives revenues from owning an equity interest in an insurance agency that offers insurance products and services. The results of the other segment are not significant to the Corporation as a whole and have been included in “Other.” Revenue and expenses of the Corporation are also included in “Other,” and consist primarily of interest expense associated with the Corporation’s trust preferred capital notes and other general corporate expenses.


	Three Months Ended March 31, 2019
	Retail		Mortgage		Consumer
(Dollars in thousands)	Banking		Banking		Finance		Other		Eliminations		Consolidated
Revenues:
Interest income	$	14,324	$	350	$	10,145	$	2	$	(1,870)	$	22,951
Gains on sales of loans		—		2,136		—		—		—		2,136
Other noninterest income		2,935		1,318		196		518		—		4,967
Total operating income		17,259		3,804		10,341		520		(1,870)		30,054
Expenses:
Provision for loan losses		—		—		2,395		—		—		2,395
Interest expense		2,175		163		2,551		285		(1,870)		3,304
Salaries and employee benefits		7,475		1,627		2,252		553		—		11,907
Other noninterest expenses		4,903		1,244		1,375		248		—		7,770
Total operating expenses		14,553		3,034		8,573		1,086		(1,870)		25,376
Income (loss) before income taxes		2,706		770		1,768		(566)		—		4,678
Income tax expense (benefit)		416		203		483		(195)		—		907
Net income (loss)	$	2,290	$	567	$	1,285	$	(371)	$	—	$	3,771
Total assets	$	1,380,790	$	53,642	$	301,579	$	6,836	$	(193,487)	$	1,549,360
Goodwill	$	3,702	$	—	$	10,723	$	—	$	—	$	14,425
Capital expenditures	$	722	$	24	$	8	$	—	$	—	$	754


	Three Months Ended March 31, 2018
	Retail		Mortgage		Consumer
(Dollars in thousands)	Banking		Banking		Finance		Other		Eliminations		Consolidated
Revenues:
Interest income	$	13,160	$	367	$	10,849	$	—	$	(1,632)	$	22,744
Gains on sales of loans		—		2,239		—		—		—		2,239
Other noninterest income		2,619		857		248		483		—		4,207
Total operating income		15,779		3,463		11,097		483		(1,632)		29,190
Expenses:
Provision for loan losses		—		—		3,300		—		—		3,300
Interest expense		1,617		143		2,165		283		(1,632)		2,576
Salaries and employee benefits		6,486		1,443		2,265		539		—		10,733
Other noninterest expenses		4,981		1,275		1,307		243		—		7,806
Total operating expenses		13,084		2,861		9,037		1,065		(1,632)		24,415
Income (loss) before income taxes		2,695		602		2,060		(582)		—		4,775
Income tax expense (benefit)		383		167		562		(229)		—		883
Net income (loss)	$	2,312	$	435	$	1,498	$	(353)	$	—	$	3,892
Total assets	$	1,356,936	$	54,516	$	292,417	$	5,066	$	(184,009)	$	1,524,926
Goodwill	$	3,702	$	—	$	10,723	$	—	$	—	$	14,425
Capital expenditures	$	572	$	21	$	28	$	—	$	—	$	621

The retail banking segment extends a warehouse line of credit to the mortgage banking segment, providing a portion of the funds needed to originate mortgage loans. The retail banking segment charges the mortgage banking segment interest at the daily FHLB advance rate plus 50 basis points. The retail banking segment also provides the consumer finance

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segment with a portion of the funds needed to purchase loan contracts by means of variable rate notes that carry interest at one-month LIBOR plus 200 basis points and fixed rate notes that carry interest at rates ranging from 2.0 percent to 8.0 percent. The retail 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. Certain corporate overhead costs incurred by the retail banking segment are not allocated to the mortgage banking, consumer finance and other 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 was $253.98 million at March 31, 2019 and $244.17 million at December 31, 2018.

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 $19.56 million at March 31, 2019 and $19.34 million at December 31, 2018.

C&F Mortgage sells substantially all of the residential mortgage loans it originates to third-party counterparties (i.e., investors). As is customary in the industry, the agreements with these counterparties require C&F Mortgage to extend representations and warranties with respect to program compliance, borrower misrepresentation, fraud, and early payment performance. Under the agreements, the counterparties are entitled to make loss claims and repurchase requests of C&F Mortgage for loans that contain covered deficiencies. C&F Mortgage has obtained early payment default recourse waivers for a significant portion of its business. Recourse periods for early payment default for the remaining counterparties 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. C&F Mortgage 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 C&F Mortgage by the counterparties, the evaluation of potential losses is inherently subjective. A schedule of expected losses on loans with claims or indemnifications is maintained to ensure the reserve is adequate to cover estimated losses.

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 derivatives as hedging instruments in a qualifying hedge accounting relationship (cash flow or fair value hedge). The remaining derivatives are classified as free standing derivatives consisting of customer accommodation loan swaps and IRLCs.

Cash flow hedges . The Corporation designates derivatives 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. The Corporation uses interest rate swap agreements as part of its hedging strategy by exchanging variable-rate interest payments on a notional amount equal to the principal amount of the borrowings for fixed-rate interest payments. Interest rate swaps

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designated as cash flow hedges are expected to be highly effective in offsetting the effect of changes in interest rates on the amount of the hedged interest payments, and the Corporation assesses the effectiveness of each hedging relationship quarterly. As of March 31, 2019, 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 December 2019 and September 2020.

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.

The terms and conditions of the interest rate swaps vary and amounts receivable or payable are recognized in interest expense in the Consolidated Statements of Income as accrued under the terms of the agreements. The derivatives’ unrealized gains or losses are recorded as a component of other comprehensive income and reclassified into earnings in the same period(s) during which the hedged transactions affect earnings. 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 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 qualify as financial derivatives with fair values reported in “Other assets” and “Other liabilities” in the Consolidated Balance Sheets. Changes in fair value are recorded in other noninterest expense and net to zero because of the identical amounts and terms of the swaps.

IRLCs . C&F Mortgage enters into IRLCs with customers to originate loans for which the interest rates are determined prior to funding. C&F Mortgage then mitigates interest rate risk on these IRLCs and loans held for sale by (a) entering into forward loan sales contracts with investors for loans to be delivered on a best efforts basis or (b) entering into forward sales contracts of mortgage backed securities for loans to be delivered on a mandatory basis. At March 31, 2019, each loan held for sale by C&F Mortgage was subject to a forward sales agreement on a best efforts basis. The fair value of these derivative instruments is reported in “Other assets” in the Consolidated Balance Sheets. Changes in fair value are recorded as a component of gains on sales of loans.

The following tables summarize key elements of the Corporation’s derivative instruments:


	March 31, 2019
	Notional								Collateral
(Dollars in thousands)	Amount		Positions		Assets		Liabilities		Pledged 1
Cash flow hedges:
Interest rate swaps:
Variable-rate to fixed-rate swaps with counterparty	$	25,000		3	$	182	$	—	$	—
Not designated as hedges:
Customer-related interest rate contracts:
Matched interest rate swaps with borrower		45,785		8		589		789		—
Matched interest rate swaps with counterparty		45,785		8		789		589		390
Other contracts:
IRLCs		95,921		380		1,396		—		—

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	December 31, 2018
	Notional								Collateral
(Dollars in thousands)	Amount		Positions		Assets		Liabilities		Pledged 1
Cash flow hedges:
Interest rate swaps:
Variable-rate to fixed-rate swaps with counterparty	$	25,000		3	$	289	$	—	$	—
Not designated as hedges:
Customer-related interest rate contracts:
Matched interest rate swaps with borrower		45,961		8		216		1,391		—
Matched interest rate swaps with counterparty		45,961		8		1,391		216		—
Other contracts:
IRLCs		44,324		181		636		—		—

Collateral pledged may be comprised of cash or securities.

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 March 31,
(Dollars in thousands)	2019		2018
Data processing fees	$	1,921	$	1,827
Professional fees		564		739
Travel and educational expenses		403		371
Marketing and advertising expenses		373		460
Telecommunication expenses		317		346
All other noninterest expenses		2,002		2,032
Total other noninterest expenses	$	5,580	$	5,775

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

Cautionary Statement Regarding Forward-Looking Statements

This report contains statements concerning the Corporation’s expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements may constitute “forward-looking statements” as defined by federal securities laws and may include, but are not limited to: statements regarding expected future financial performance; strategic business initiatives and the anticipated effects thereof, including personnel additions and the expansion of the indirect lending program to include marine and recreational vehicles (RVs); technology initiatives; liquidity and capital levels; net interest margin compression; the effect of future market and industry trends, including competitive trends in the non-prime consumer finance markets, the Corporation’s and each business segment’s loan portfolio, and business prospects related to each segment’s loan portfolio, including future lending and growth in loans outstanding; asset quality and adequacy of the allowance for loan losses and the level of future charge-offs; trends regarding the provision for loan losses, net loan charge-offs, levels of nonperforming assets and troubled debt restructurings (TDRs); expenses associated with nonperforming assets; the utilization of scorecard models and the performance of loans purchased using those models; the effects of future interest rate levels and fluctuations; the amount and timing of accretion associated with the fair value accounting adjustments recorded in connection with the 2013 acquisition of Central Virginia Bankshares, Inc. (CVBK); adequacy of the allowance for indemnification losses; levels of noninterest income and expense; interest rates and yields including possible future interest rate increases; the deposit portfolio including trends in deposit maturities and rates; interest rate sensitivity; market risk; regulatory developments; monetary policy implemented by the Board of Governors of the Federal Reserve System (the Federal Reserve Board) including changes to the Federal Funds rate; capital requirements; growth strategy; hedging strategy; and, financial and other goals. Factors that could have a material adverse effect on the operations and future prospects of the Corporation include, but are not limited to, changes in:

interest rates, such as increases or volatility in the Federal Funds rate, yields on U.S. Treasury securities or mortgage rates

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

general economic conditions, including unemployment levels and slowdowns in economic growth

the legislative/regulatory climate with respect to financial institutions, including the Dodd-Frank Act and regulations promulgated thereunder, the Consumer Financial Protection Bureau (CFPB) and the regulatory and enforcement activities of the CFPB, the application of the Basel III capital standards to the Corporation and C&F Bank and the Economic Growth, Regulatory Relief and Consumer Protection of 2018 and regulations promulgated thereunder

monetary and fiscal policies of the U.S. Government, including policies of the U.S. Department of the Treasury and 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

demand for loan products

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

the commercial and residential real estate markets

the inventory level and pricing of new and 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

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deposit flows

demand in the secondary residential mortgage loan markets

the level of indemnification losses related to mortgage loans sold

the strength of the Corporation’s counterparties and the economy in general

competition from both banks and non-banks, including competition in the non-prime automobile finance markets

demand for financial services in the Corporation’s market area

the Corporation's branch and market expansions and technology initiatives

cyber threats, attacks or events

reliance on third parties for key services

C&F Bank’s product offerings

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

These risks and uncertainties, and the risks discussed in more detail in Item 1A. “Risk Factors,” of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2018, should be considered in evaluating the forward-looking statements contained herein.

Forward-looking statements are inherently uncertain. Forward-looking statements are based on management’s beliefs, assumptions and expectations as of the date of this report regarding future events or performance, taking into account all information currently available, and are applicable only as of the date of this report. 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. There can be no assurance that the underlying beliefs, assumptions or expectations will be proven to be accurate. We caution readers not to place undue reliance on those forward-looking statements. Actual results may differ materially from historical results or those expressed in or implied by such forward-looking statements. 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.

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.

CRITICAL ACCOUNTING POLICIES

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 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 collectibility of loans

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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.

Allowance for Indemnifications: The allowance for indemnifications is established through charges to earnings in the form of a provision for indemnifications, which is included in other noninterest expenses. A loss is charged against the allowance for indemnifications when a purchaser (investor) of a loan sold by C&F Mortgage incurs a validated indemnified loss due to borrower misrepresentation, fraud, early default, or underwriting error. The allowance represents an amount that, in management’s judgment, will be adequate to absorb any losses that are probable of arising from valid indemnification requests for loans that have been sold by C&F Mortgage. Management’s judgment in determining the level of the allowance is based on the volume of loans sold, historical experience, current economic conditions and information provided by investors. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

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 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.

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 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.

The Corporation's PCI loans currently consist of loans acquired in connection with the acquisition of CVB. PCI loans that were classified as nonperforming loans by CVB are no longer 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

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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.

Impairment of Securities: Impairment of securities occurs when the fair value of a security is less than its amortized cost. For debt securities, impairment is considered other-than-temporary and recognized in its entirety in net income if either (i) we intend to sell the security or (ii) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If, however, we do not intend to sell the security and it is not more-likely-than-not that we will be required to sell the security before recovery, we must determine what portion of the impairment is attributable to a credit loss, which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security. If there is no credit loss, there is no other-than-temporary impairment. If there is a credit loss, other-than-temporary impairment exists, and the credit loss must be recognized in net income and the remaining portion of impairment must be recognized in other comprehensive income.

We regularly review unrealized losses in our investments in securities based on criteria including the extent to which market value is below amortized cost, the duration of that market decline, the financial health of and specific prospects for the issuer, our best estimate of the present value of cash flows expected to be collected from debt securities, our intention with regard to holding the security to maturity and the likelihood that we would be required to sell the security before recovery.

Other Real Estate Owned (OREO): Assets acquired through, or in lieu of, foreclosure are held for sale and are initially recorded at the fair value less estimated costs to sell at the date of foreclosure. 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 intention 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 sell if valuations indicate a further deterioration in market conditions.

Goodwill: The Corporation's goodwill was recognized in connection with the Corporation's acquisition of CVBK in October 2013 and C&F Bank's acquisition of C&F Finance Company in September 2002. 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 retail banking segment and the consumer finance segment, which was the annual evaluation in the fourth quarter of 2018, the Corporation concluded that no impairment existed based on an assessment of qualitative factors.

Retirement Plan: C&F Bank maintains a non-contributory, defined benefit pension plan for eligible full-time employees as specified by the plan. Plan assets, which consist primarily of mutual funds invested in marketable equity securities and corporate and government fixed income securities, are measured at fair value. The projected benefit obligation and net periodic pension cost or income are actuarially determined using a number of key assumptions, which may include discount rates, rates of return on plan assets, employee compensation and mortality and interest crediting rates. Changes in these assumptions in the future, if any, or in the method under which benefits are calculated may affect the projected benefit obligation in the year of the change, and may affect net periodic pension cost or income in the year of the change or in future periods.

Derivative Financial Instruments: The Corporation uses derivatives primarily to manage risk associated with changing interest rates and to assist customers with their risk management objectives. The Corporation’s derivative financial instruments may include (1) interest rate lock commitments (IRLCs) on mortgage loans that will be held for sale and the related forward sales commitments, (2) interest rate swaps with certain qualifying commercial loan customers and dealer counterparties and (3) interest rate swaps that qualify and are designated as cash flow hedges of the Corporation’s trust preferred capital notes. The Corporation recognizes derivative financial instruments at fair value as either an other asset or

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other liability in the Consolidated Balance Sheets. Because the IRLCs, forward sales commitments and interest rate swaps with loan customers and dealer counterparties are not designated as hedging instruments, adjustments to reflect unrealized gains and losses resulting from changes in fair value of these instruments are reported in the Consolidated Statements of Income. The gains or losses on the Corporation’s cash flow hedges are reported as a component of other comprehensive income, net of deferred income taxes, and are reclassified into earnings in the same period or periods during which the hedged transactions affect earnings.

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, 2018.

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 principal business segments: retail 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.

Financial Performance Measures

Net income for the Corporation was $3.8 million for the first quarter of 2019, or $1.08 per share, compared with net income of $3.9 million for the first quarter of 2018, or $1.11 per share.

The Corporation’s annualized ROE and ROA were 9.96 percent and 1.00 percent, respectively, for the first quarter of 2019, compared to 11.05 percent and 1.04 percent, respectively, for the first quarter of 2018. The decrease in ROE for the first quarter of 2019, compared to the first quarter of 2018, resulted from lower net income and an increase in capital. The decrease in ROA during the same period resulted from lower net income and an increase in the average balance of total assets.

Principal Business Segments

An overview of the financial results for each of the Corporation’s principal segments is presented below. A more detailed discussion is included in the section “Results of Operations.”

Retail Banking: The retail banking segment reported net income of $2.3 million for both the first quarter of 2019 and the first quarter of 2018.

Positive factors affecting net income of C&F Bank for the first quarter of 2019 compared to the same period in 2018 included (1) higher interest income from loans, due to higher average loans outstanding and higher yields and (2) higher yields on excess cash balances. These factors were offset by (1) an increase in average rates on interest-bearing customer deposits, (2) higher operating expenses associated with C&F Bank (a) strengthening its technology infrastructure and (b)

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expanding its lending capabilities and administrative and compliance functions, and (3) lower service charges on deposit accounts resulting from fewer overdraft fees charged.

Average loans increased $41.6 million or 5.7 percent during the first quarter of 2019, compared to the same period in 2018, primarily due to growth in the commercial business lending and commercial real estate segments of the loan portfolio. C&F Bank’s total nonperforming assets were $1.8 million at March 31, 2019, compared to $1.7 million at December 31, 2018. Nonperforming assets at March 31, 2019 consisted primarily of $1.6 million in nonaccrual loans, compared to $1.5 million at December 31, 2018.

Mortgage Banking: The mortgage banking segment reported net income of $567,000 for the first quarter of 2019, compared to net income of $435,000 for the first quarter of 2018.

The increase in net income of the mortgage banking segment for the first quarter of 2019 compared to the same period in 2018 was due primarily to a decrease in operating expenses resulting from operational efficiencies and management of personnel costs, which was partially offset by lower gains on sales of loans, resulting primarily from lower loan production during the first quarter of 2019 compared to the first quarter of 2018 as competition for loans in the mortgage industry has increased since the first quarter of 2018. Mortgage loan originations during the quarter ended March 31, 2019 for refinancings and home purchases were $20.8 million and $117.9 million, respectively, compared to $24.5 million and $119.4 million, respectively, during the quarter ended March 31, 2018.

Consumer Finance: The consumer finance segment reported net income of $1.3 million for the first quarter of 2019, compared to net income of $1.5 million for the first quarter of 2018.

Factors contributing to the decrease in net income of C&F Finance Company for the first quarter of 2019 compared to the same period in 2018 included (1) lower loan yields resulting from competition in the non-prime automobile loan business and the acquisition of automobile loan contracts with higher credit metrics, as well as relatively lower yields on marine and RV loans, and (2) higher-cost variable-rate borrowings resulting from increases in short-term interest rates since the first quarter of 2018, which were partially offset by a decline in the provision for loan losses of $905,000 as a result of lower charge-offs and improving credit quality of the portfolio, as discussed below.

The annualized net charge-off ratio for the first quarter of 2019 decreased to 3.79 percent from 4.69 percent for the first quarter of 2018. The decline reflects a lower number of charge-offs during the first quarter of 2019 as a result of C&F Finance Company’s purchasing automobile loan contracts with higher credit metrics beginning in 2016. At March 31, 2019, total delinquent loans as a percentage of total loans was 2.66 percent, compared to 4.76 percent at December 31, 2018 and 3.31 percent at March 31, 2018. The allowance for loan losses was $22.6 million, or 7.54 percent of total loans at March 31, 2019, compared to $23.0 million, or 7.77 percent of total loans at December 31, 2018. The decrease in the level of the allowance for loan losses as a percentage of total loans was primarily due to lower net charge-offs on non-prime automobile loans and was partially offset by loan growth during the first quarter of 2019. During the first quarter of 2019, C&F Finance Company continued the expansion of its indirect lending programs into marine and RV loans that it began in 2018. These contracts are for prime loans made to individuals with higher credit scores and are expected to require both a lower provision for loan losses and allowance for loan losses than the consumer finance segment’s non-prime automobile loans. At March 31, 2019, compared to December 31, 2018, the higher composition within the consumer finance segment’s loan portfolio of marine and RV loans accounted for approximately 4 basis points of the 23 basis points decrease in the ratio of the allowance for loan losses to total loans. If factors influencing the consumer finance segment result in a higher net charge-off ratio in the future, or if the consumer finance segment’s loan portfolio should grow, the segment may need to increase the level of its allowance for loan losses, which would negatively affect future earnings.

Capital Management. Total equity was $154.9 million at March 31, 2019, compared to $152.0 million at December 31, 2018. Capital growth resulted primarily from earnings for the first quarter of 2019, which was offset in part by dividends declared of 37 cents per share during the first quarter of 2019. The first quarter dividend was paid on April 1, 2019 and equated to a payout ratio of 34.3 percent of first quarter 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 requirements and expected future earnings.

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On April 18, 2018, the Board of Directors reauthorized the Corporation’s share repurchase program for the Corporation’s outstanding common stock (the Repurchase Program) to purchase up to $5.0 million of the Corporation’s common stock through May 31, 2019. As of March 31, 2019, the Corporation had repurchased 53,639 shares of its common stock at an aggregate cost of $2.8 million, and remained authorized to purchase up to $2.2 million of the Corporation’s common stock under the Repurchase Program.

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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 months ended March 31, 2019 and 2018. 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 are included in the computation of yields on loans and investments and on the cost of borrowings acquired in connection with the purchase of CVB. The CVB accretion contributed approximately 16 basis points to the yield on loans and 13 basis points to both the yield on interest earning assets and the net interest margin for the first quarter of 2019, compared to approximately 35 basis points to the yield on loans and 26 basis points to both the yield on interest earning assets and the net interest margin for the first quarter of 2018. 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 the first quarters of 2019 and 2018.

TABLE 1: Average Balances, Income and Expense, Yields and Rates


	Three Months Ended March 31,
	2019						2018
	Average		Income/		Yield/		Average		Income/		Yield/
(Dollars in thousands)	Balance		Expense		Rate		Balance		Expense		Rate
Assets
Securities:
Taxable	$	139,895	$	859	2.46	%	$	133,935	$	748	2.24	%
Tax-exempt		76,314		738	3.87			89,776		906	4.03
Total securities		216,209		1,597	2.95			223,711		1,654	2.96
Total loans		1,099,638		20,926	7.72			1,059,149		20,824	7.97
Interest-bearing deposits in other banks		103,807		589	2.30			128,031		464	1.47
Total earning assets		1,419,654		23,112	6.60			1,410,891		22,942	6.59
Allowance for loan losses		(34,116)						(35,781)
Total non-earning assets		127,959						127,485
Total assets	$	1,513,497					$	1,502,595

Liabilities and Equity
Interest-bearing deposits:
Interest-bearing demand deposits	$	225,072		312	0.56		$	229,220		185	0.33
Money market deposit accounts		205,461		260	0.51			223,961		157	0.28
Savings accounts		120,531		30	0.10			114,033		22	0.08
Certificates of deposit, $100 or more		182,015		717	1.60			172,498		521	1.22
Other certificates of deposit		176,650		589	1.35			179,602		435	0.98
Interest-bearing deposits		909,729		1,908	0.85			919,314		1,320	0.58
Borrowings		159,986		1,396	3.49			166,769		1,256	3.01
Total interest-bearing liabilities		1,069,715		3,304	1.25			1,086,083		2,576	0.96
Noninterest-bearing demand deposits		263,000						249,100
Other liabilities		29,264						26,541
Total liabilities		1,361,979						1,361,724
Equity		151,518						140,871
Total liabilities and equity	$	1,513,497					$	1,502,595
Net interest income			$	19,808					$	20,366
Interest rate spread					5.35	%					5.63	%
Interest expense to average earning assets (annualized)					0.94	%					0.74	%
Net interest margin (annualized)					5.66	%					5.85	%

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

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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.

TABLE 2: Rate-Volume Recap


	Three Months Ended March 31, 2019 from 2018
	Increase (Decrease)				Total
	Due to				Increase
(Dollars in thousands)	Rate		Volume		(Decrease)
Interest income:
Loans	$	(671)	$	773	$	102
Securities:
Taxable		77		34		111
Tax-exempt		(35)		(133)		(168)
Interest-bearing deposits in other banks		225		(100)		125
Total interest income		(404)		574		170
Interest expense:
Interest-bearing deposits:
Interest-bearing demand deposits		130		(3)		127
Money market deposit accounts		117		(14)		103
Savings accounts		7		1		8
Certificates of deposit, $100 or more		167		29		196
Other certificates of deposit		161		(7)		154
Total interest-bearing deposits		582		6		588
Borrowings		193		(53)		140
Total interest expense		775		(47)		728
Change in net interest income	$	(1,179)	$	621	$	(558)

Net interest income, on a taxable-equivalent basis, for the three months ended March 31, 2019 was $19.8 million, compared to $20.4 million for the three months ended March 31, 2018. Annualized net interest margin decreased 19 basis points to 5.66 percent for the first quarter of 2019, relative to the same period in 2018. The net interest margin decline resulted from a 29 basis points increase in the cost of interest-bearing liabilities in the first quarter of 2019, compared to the same period in 2018, resulting from higher costs of deposits and borrowings. The yield on interest-earning assets increased by 1 basis point as a higher yield on interest-bearing deposits in other banks and a higher composition of loans as a percentage of earning assets were offset by a decline in the yield on loans of 25 basis points. The decrease in the net interest margin was offset in part by average earning asset growth of $8.8 million for the first quarter of 2019, over the first quarter of 2018.

Average loans, which includes both loans held for investment and loans held for sale, increased $40.5 million to $1.1 billion for the first quarter of 2019, compared to the same period in 2018. Average loans held for investment of the retail banking segment increased $41.6 million, or 5.7 percent, for the first quarter of 2019, compared to the same period in 2018, primarily due to growth in the commercial business lending and commercial real estate segments of the loan portfolio. Average loans held for investment at the consumer finance segment increased $3.7 million, or 1.3 percent for the first quarter of 2019, compared to the same period of 2018, as a result of the consumer finance segment’s expansion into purchases of marine and RV loan contracts beginning in the first quarter of 2018. Average loans held for sale decreased $4.9 million, or 15.1 percent for the first quarter of 2019, compared to the same period in 2018.

The overall yield on average loans decreased 25 basis points to 7.72 percent for the first quarter of 2019, compared to the same period in 2018. Negative factors affecting average loan yield for the first quarter of 2019, compared to the same period in 2018, were (1) the increased composition within the loan portfolio of lower-yielding loans at the retail banking segment relative to the higher-yielding loans of the consumer finance segment, (2) the decline in the average yield on loans at the consumer finance segment due primarily to continued competition in the non-prime automobile loan business and the acquisition of loan contracts with higher credit metrics, as well as relatively lower yields on marine and recreational vehicle loans as a result of higher credit quality, and (3) lower interest income on PCI loans, which includes accretion of purchase accounting adjustments, as prepayments and improvements in expectations of the timing and amount of future payments resulted in an acceleration in the recognition of interest income in the first quarter of 2018. Partially offsetting these factors were higher yields on loans at the retail banking segment resulting from increases in interest rates.

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Average securities available for sale decreased $7.5 million for the first quarter of 2019, compared to the same period in 2018. The average yield on the securities portfolio decreased one basis point for the first quarter of 2019, compared to the same period in 2018.

Average interest-bearing deposits in other banks, consisting primarily of excess cash reserves maintained at the Federal Reserve Bank, decreased $24.2 million during the first quarter of 2019, compared to the same period in 2018. The decrease during the first quarter of 2019 resulted primarily from loan growth at the retail banking segment. The average yield on these overnight funds increased 83 basis points for the first quarter of 2019 compared to the same period in 2018, as the Federal Reserve Bank increased the interest rate on excess cash reserve balances from 1.50 percent in December 2017 to 2.40 percent by the end of the first quarter of 2019.

Average savings and interest-bearing demand deposits decreased $16.2 million for the first quarter of 2019 and average time deposits increased $6.6 million for the first quarter of 2019, compared to the same period in 2018. The average cost of interest-bearing deposits increased 27 basis points for the first quarter of 2019, compared to the first quarter of 2018, due to increases in interest rates on time deposits, interest-bearing demand deposits, and money market deposits driven by changes in market interest rates.

Average borrowings decreased $6.8 million for the first quarter of 2019, compared to the same period in 2018. The decrease resulted from maturities during 2018 of a $5.0 million repurchase agreement with a third-party correspondent bank and a $2.5 million advance from the Federal Home Loan Bank (FHLB). The average cost of borrowings increased 48 basis points during the first quarter of 2019, compared to the same period in 2018, because of increases in short-term interest rates, to which variable-rate borrowings at the consumer finance segment are indexed.

The Corporation believes that it may be challenging to maintain net interest margin at its current level, even with the projected loan growth at the Bank during 2019, because of (1) repricing of maturing time deposits at current market rates, (2) lower yields on consumer finance segment loans resulting from continued market competition and growth in lower-yielding higher-quality loans (including marine and RV loans), and (3) lower accretion of purchase discounts on PCI loans, which is included in yields on loans.

Noninterest Income

TABLE 3: Noninterest Income


	Three Months Ended March 31, 2019
	Retail		Mortgage		Consumer		Other and
(Dollars in thousands)	Banking		Banking		Finance		Eliminations		Total
Gains on sales of loans	$	—	$	2,136	$	—	$	—	$	2,136
Service charges on deposit accounts		918		—		—		—		918
Other service charges and fees		298		769		1		—		1,068
Net gains on calls of available for sale securities		4		—		—		—		4
Wealth management services income, net		—		—		—		449		449
Interchange income		958		—		—		—		958
Other income		757		549		195		69		1,570
Total noninterest income	$	2,935	$	3,454	$	196	$	518	$	7,103

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	Three Months Ended March 31, 2018
	Retail		Mortgage		Consumer		Other and
(Dollars in thousands)	Banking		Banking		Finance		Eliminations		Total
Gains on sales of loans	$	—	$	2,239	$	—	$	—	$	2,239
Service charges on deposit accounts		1,049		—		—		—		1,049
Other service charges and fees		307		751		2		—		1,060
Net gains on calls of available for sale securities		5		—		—		—		5
Wealth management services income, net		—		—		—		425		425
Interchange income		906		—		—		—		906
Other income		352		106		246		58		762
Total noninterest income	$	2,619	$	3,096	$	248	$	483	$	6,446

Total noninterest income increased $657,000, or 10.2 percent, in the first quarter of 2019, compared to the first quarter of 2018. This increase in noninterest income was primarily due to net unrealized gains of $1.0 million in the first quarter of 2019 included primarily in other income of the retail banking and mortgage banking segments related to the Corporation’s non-qualified deferred compensation plan compared to $33,000 in the first quarter of 2018, partially offset by (1) a decrease in gains on sales of loans at the mortgage banking segment as a result of lower mortgage loan volume and pricing pressure due to competition in the secondary mortgage market and (2) decreased service charges on deposit accounts at the retail banking segment as a result of fewer overdraft fees charged.

Noninterest Expense

TABLE 4: Noninterest Expense


	Three Months Ended March 31, 2019
	Retail		Mortgage		Consumer		Other and
(Dollars in thousands)	Banking		Banking		Finance		Eliminations		Total
Salaries and employee benefits	$	7,475	$	1,627	$	2,252	$	553	$	11,907
Occupancy expense		1,486		479		203		22		2,190
Other expenses:
Data processing		1,584		10		309		18		1,921
Other expenses		1,833		755		863		208		3,659
Total other expenses		3,417		765		1,172		226		5,580
Total noninterest expense	$	12,378	$	2,871	$	3,627	$	801	$	19,677


	Three Months Ended March 31, 2018
	Retail		Mortgage		Consumer		Other and
(Dollars in thousands)	Banking		Banking		Finance		Eliminations		Total
Salaries and employee benefits	$	6,486	$	1,443	$	2,265	$	539	$	10,733
Occupancy expense		1,343		471		203		14		2,031
Other expenses:
Data processing		1,491		15		310		11		1,827
Other expenses		2,147		789		794		218		3,948
Total other expenses		3,638		804		1,104		229		5,775
Total noninterest expense	$	11,467	$	2,718	$	3,572	$	782	$	18,539

Total noninterest expenses increased $1.1 million, or 6.1 percent, in the first quarter of 2019, compared to the same period in 2018. This increase in noninterest expenses resulted primarily from (1) an increase in salaries and employee benefits expense associated with the Corporation’s nonqualified deferred compensation plan, primarily at the retail banking and mortgage banking segments and (2) higher operating costs at the retail banking segment attributable to (a) increased personnel costs associated with expanding the Bank’s lending capabilities and administrative and compliance functions and (b) higher data processing and occupancy expenses associated with enhancing the technology infrastructure and expanding our digital product offerings. Partially offsetting these factors were decreased personnel costs at the mortgage banking segment resulting from lower loan origination volume, operating efficiencies and managing personnel costs.

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Compensation expense related to the Corporation’s nonqualified deferred compensation plan is recorded based in part on changes in the fair value of assets held in trust for the plan, which are allocated to participants. As a result of unrealized gains related to the nonqualified plan, additional compensation expense of $1.0 million was recorded in the first quarter of 2019 as compared to the first quarter of 2018, and was offset by gains recorded in noninterest income, as discussed above.

Income Taxes

Income tax expense for the first quarter of 2019 was $907,000 resulting in an effective tax rate of 19.4 percent, compared with $883,000, or an effective tax rate of 18.5 percent, for the first quarter of 2018. The higher effective tax rate in the first quarter of 2019 compared to the first quarter of 2018 resulted primarily from lower tax benefits of share-based compensation and tax-exempt investment securities income.

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. Table 5 summarizes the allowance activity for the periods indicated:

TABLE 5: Allowance for Loan Losses


	Three Months Ended March 31,
(Dollars in thousands)	2019			2018
Balance, beginning of period	$	34,023		$	35,726
Provision for loan losses:
Retail Banking		—			—
Mortgage Banking		—			—
Consumer Finance		2,395			3,300
Total provision for loan losses		2,395			3,300
Loans charged off:
Commercial, financial and agricultural 1		—			(2)
Consumer		(76)			(71)
Consumer finance		(3,890)			(4,583)
Total loans charged off		(3,966)			(4,656)
Recoveries of loans previously charged off:
Real estate—residential mortgage		5			22
Commercial, financial and agricultural 1		1			5
Consumer		42			48
Consumer finance		1,089			1,155
Total recoveries		1,137			1,230
Net loans charged off		(2,829)			(3,426)
Balance, end of period	$	33,589		$	35,600
Ratio of net charge-offs to average total loans outstanding during period for Retail Banking		0.01	%		—	%
Ratio of net charge-offs to average total loans outstanding during period for Consumer Finance		3.79	%		4.69	%

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

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Table 6 presents the allocation of the allowance for loan losses as of the dates indicated.

TABLE 6: Allocation of Allowance for Loan Losses


	March 31,			December 31,
(Dollars in thousands)	2019			2018
Allocation of allowance for loan losses:
Real estate—residential mortgage	$	2,204		$	2,246
Real estate—construction 1		841			727
Commercial, financial and agricultural 2		6,664			6,688
Equity lines		901			1,106
Consumer		386			257
Consumer finance		22,593			22,999
Total allowance for loan losses	$	33,589		$	34,023
Ratio of loans to total period-end loans:
Real estate—residential mortgage		17	%		17	%
Real estate—construction 1		6			5
Commercial, financial and agricultural 2		43			43
Equity lines		5			5
Consumer		1			2
Consumer finance		28			28
		100	%		100	%

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

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 7 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.

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.

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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 7: Credit Quality Indicators

Loans by credit quality indicators as of March 31, 2019 were as follows:


			Special				Substandard
(Dollars in thousands)	Pass		Mention		Substandard		Nonaccrual		Total 1
Real estate – residential mortgage	$	179,808	$	2,210	$	978	$	701	$	183,697
Real estate – construction 2		65,588		—		—		—		65,588
Commercial, financial and agricultural 3		445,256		13,653		882		29		459,820
Equity lines		52,895		409		47		760		54,111
Consumer		12,697		9		3		124		12,833
	$	756,244	$	16,281	$	1,910	$	1,614	$	776,049


			Non-
(Dollars in thousands)	Performing		Performing		Total
Consumer finance	$	299,072	$	520	$	299,592

At March 31, 2019, the Corporation did not have any loans classified as Doubtful or Loss.

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

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, 2018 were as follows:


			Special				Substandard
(Dollars in thousands)	Pass		Mention		Substandard		Nonaccrual		Total 1
Real estate – residential mortgage	$	180,232	$	2,832	$	1,243	$	594	$	184,901
Real estate – construction 2		54,461		—		—		—		54,461
Commercial, financial and agricultural 3		440,832		14,625		454		24		455,935
Equity lines		54,289		389		99		883		55,660
Consumer		14,998		5		6		—		15,009
	$	744,812	$	17,851	$	1,802	$	1,501	$	765,966


			Non-
(Dollars in thousands)	Performing		Performing		Total
Consumer finance	$	295,442	$	712	$	296,154

At December 31, 2018, the Corporation did not have any loans classified as Doubtful or Loss.

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

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

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Table 8 summarizes nonperforming assets as of the dates indicated.

TABLE 8: Nonperforming Assets

Retail Banking Segment


	March 31,			December 31,
(Dollars in thousands)	2019			2018
Loans, excluding purchased loans	$	734,856		$	723,778
Purchased performing loans 1		35,882			36,874
Purchased credit impaired loans 1		1,859			1,835
Total loans	$	772,597		$	762,487

Nonaccrual loans	$	1,577		$	1,464
OREO		246			246
Total nonperforming assets	$	1,823		$	1,710

Accruing loans past due for 90 days or more	$	328		$	324
Troubled debt restructurings (TDRs) 2	$	4,682		$	5,451
Allowance for loan losses (ALL)	$	10,398		$	10,426
Nonperforming assets to total loans and OREO		0.24	%		0.22	%
ALL to total loans, excluding purchased credit impaired loans		1.35			1.37
ALL to total nonaccrual loans		659.35			712.16
Annualized net charge-offs to average total loans		0.01			0.06

Acquired loans are tracked in two separate categories – “purchased performing” and “purchased credit impaired.” The remaining discount for the purchased performing loans was $1.8 million at March 31, 2019 and $1.9 million at December 31, 2018. The remaining discount for the purchased credit impaired loans was $7.7 million at March 31, 2019 and $7.9 million at December 31, 2018.

Nonaccrual loans include nonaccrual TDRs of $139,000 at March 31, 2019 and $166,000 at December 31, 2018.

Mortgage Banking Segment


	March 31,			December 31,
(Dollars in thousands)	2019			2018
Nonaccrual loans	$	37		$	37
Total loans	$	3,452		$	3,479
ALL	$	598		$	598
Nonaccrual loans to total loans		1.07	%		1.06	%
ALL to total loans		17.32			17.19

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Consumer Finance Segment


	March 31,			December 31,
(Dollars in thousands)	2019			2018
Nonaccrual loans	$	520		$	712
Accruing loans past due for 90 days or more	$	—		$	—
Repossessed assets	$	391		$	371
Total loans	$	299,592		$	296,154
ALL	$	22,593		$	22,999
Nonaccrual consumer finance loans to total consumer finance loans		0.17	%		0.24	%
ALL to total consumer finance loans		7.54			7.77
Annualized net charge-offs to average total loans		3.79			4.14

Nonperforming assets of the retail banking segment totaled $1.8 million at March 31, 2019, compared to $1.7 million at December 31, 2018. Nonperforming assets at March 31, 2019 consisted primarily of $1.6 million in nonaccrual loans, compared to $1.5 million at December 31, 2018.

The allowance for loan losses as a percentage of total loans, excluding PCI loans, at March 31, 2019 decreased to 1.35 percent, compared to 1.37 percent at December 31, 2018. We believe that the current level of the allowance for loan losses at the retail banking segment is adequate to absorb probable losses inherent in the loan portfolio, based on the relevant history of charge-offs and recoveries, current economic conditions, overall portfolio quality and review of specifically criticized loans. If loan concentrations within the retail banking segment’s loan portfolio result in higher credit risk or if economic conditions deteriorate in future periods, a higher level of nonperforming loans may be experienced, which may then require a higher provision for loan losses.

Nonaccrual loans at the consumer finance segment were $520,000 at March 31, 2019, compared to $712,000 at December 31, 2018. 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 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 March 31, 2019, repossessed vehicles available for sale totaled $391,000, compared to $371,000 at December 31, 2018.

The consumer finance segment’s allowance for loan losses decreased $406,000 to $22.6 million at March 31, 2019 from $23.0 million at December 31, 2018, and its provision for loan losses decreased $905,000 for the first quarter of 2019, compared to the same period in 2018. The decrease in the allowance and the lower provision resulted from lower charge-offs and an overall improvement in the credit quality of the portfolio in the first quarter of 2019. Delinquent loans as a percentage of total loans decreased to 2.66 percent at March 31, 2019 from 4.76 percent at December 31, 2018. The annualized net charge-off ratio for the first quarter of 2019 decreased to 3.79 percent from 4.69 percent for the first quarter of 2018 because of the lower number of charge-offs during the first quarter of 2019. The allowance for loan losses as a percentage of loans decreased to 7.54 percent at March 31, 2019, compared to 7.77 percent at December 31, 2018. The decrease in the level of the allowance for loan losses as a percentage of total loans was primarily due to lower charge-offs on non-prime automobile loans and was partially offset by loan growth during the first quarter of 2019. At March 31, 2019, compared to December 31, 2018, the higher composition within the consumer finance segment’s loan portfolio of marine and RV loans accounted for approximately 4 basis points of the 23 basis points decrease in this ratio. We believe that the current level of the allowance for loan losses at the consumer finance segment is adequate to absorb probable losses inherent in the loan portfolio.

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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, which is not a fair value measurement. 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 9: Impaired Loans

Impaired loans, which included TDRs of $4.7 million, and the related allowance at March 31, 2019, 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	$	3,134	$	1,273	$	1,760	$	127	$	3,099	$	35
Commercial, financial and agricultural:
Commercial real estate lending		1,752		3		1,710		69		1,768		23
Builder line lending		437		437		—		—		437		7
Equity lines		225		30		187		187		217		—
Consumer		131		—		128		124		129		—
Total	$	5,679	$	1,743	$	3,785	$	507	$	5,650	$	65

Impaired loans, which included TDRs of $5.5 million, and the related allowance at December 31, 2018, 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	$	3,057	$	1,288	$	1,677	$	92	$	3,056	$	142
Commercial, financial and agricultural:
Commercial real estate lending		2,468		1,498		927		10		2,653		132
Commercial business lending		33		25		—		—		26		—
Equity lines		365		31		326		326		359		2
Consumer		5		—		5		—		5		—
Total	$	5,928	$	2,842	$	2,935	$	428	$	6,099	$	276

TDRs at March 31, 2019 and December 31, 2018 were as follows:

TABLE 10: Troubled Debt Restructurings


	March 31,		December 31,
(Dollars in thousands)	2019		2018
Accruing TDRs	$	4,543	$	5,285
Nonaccrual TDRs 1		139		166
Total TDRs 2	$	4,682	$	5,451

Included in nonaccrual loans in Table 8: Nonperforming Assets.

Included in impaired loans in Table 9: Impaired Loans.

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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 March 31, 2019, the Corporation had total assets of $1.5 billion, which was an increase of $27.9 million since December 31, 2018. The increase resulted primarily from an increase in time deposit and noninterest-bearing demand deposit balances.

Loan Portfolio

Table 11 presents information pertaining to the composition of loans held for investment.

TABLE 11: Summary of Loans Held for Investment


	March 31, 2019				December 31, 2018
(Dollars in thousands)	Amount		Percent		Amount		Percent
Real estate—residential mortgage	$	183,697	17	%	$	184,901	18	%
Real estate—construction 1		65,588	6			54,461	5
Commercial, financial, and agricultural 2		459,820	43			455,935	43
Equity lines		54,111	5			55,660	5
Consumer		12,833	1			15,009	1
Consumer finance		299,592	28			296,154	28
Total loans		1,075,641	100	%		1,062,120	100	%
Less allowance for loan losses		(33,589)				(34,023)
Total loans, net	$	1,042,052			$	1,028,097

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

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

Investment 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 March 31, 2019 and December 31, 2018, all securities in the Corporation’s investment portfolio were classified as available for sale.

The following table 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.

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TABLE 12: Securities Available for Sale


	March 31, 2019				December 31, 2018
(Dollars in thousands)	Amount		Percent		Amount		Percent
U.S. government agencies and corporations	$	17,394	8	%	$	17,473	8	%
Mortgage-backed securities		100,590	48			104,983	49
Obligations of states and political subdivisions		91,023	44			92,454	43
Total available for sale securities at fair value	$	209,007	100	%	$	214,910	100	%

For more information about the Corporation's securities available for sale, including information about securities in an unrealized loss position at March 31, 2019 and December 31, 2018, see Part I, Item 1, “Financial Statements” under the heading “Note 2: Securities” in this Quarterly Report on Form 10-Q.

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 quarter of 2019, deposits increased $20.5 million to $1.20 billion at March 31, 2019, compared to $1.18 billion at December 31, 2018. This increase resulted primarily from a $31.6 million increase in time deposits and a $4.9 million increase in noninterest-bearing demand deposits. Partially offsetting this increase was a $16.0 million decrease in savings and interest-bearing demand deposits.

The Corporation had $1.3 million in brokered money market deposits outstanding at March 31, 2019. The source of these brokered deposits is uninvested cash balances held in third-party brokerage sweep accounts. The Corporation uses brokered deposits as a means of diversifying liquidity sources, as opposed to a long-term deposit gathering strategy.

Borrowings

Borrowings increased to $161.8 million at March 31, 2019 from $159.7 million at December 31, 2018 due to fluctuations in repurchase agreements with commercial deposit customers.

Off-Balance Sheet Arrangements

As of March 31, 2019, there have been no material changes to the off-balance sheet arrangements disclosed in Part II, Item 7, "Management's Discussion and Analysis," under the heading "Off-Balance-Sheet Arrangements" in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2018.

Contractual Obligations

As of March 31, 2019, there have been no material changes outside the ordinary course of business to the contractual obligations disclosed in Part II, Item 7, “Management's Discussion and Analysis," under the heading “Table 20: Contractual Obligations” in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2018.

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The Corporation uses derivatives to manage exposure to interest rate risk through the use of interest rate swaps. Interest rate swaps involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date with no exchange of underlying principal amounts.

The Corporation has interest rate swaps that qualify and are designated as cash flow hedges. The Corporation’s cash flow hedges effectively modify the Corporation’s exposure to interest rate risk by converting variable rates of interest on $15.0 million and $10.0 million of the Corporation’s trust preferred capital notes to fixed rates of interest until December 2019 and September 2020, respectively. The cash flow hedges’ total notional amount is $25.0 million. At March 31, 2019, the cash flow hedges had a fair value of $182,000, which is recorded in other assets. The net gain on the cash flow hedges is recognized as a component of other comprehensive income.

Pursuant to a program the Corporation initiated during 2016, the Corporation also enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Corporation simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and terms. The net effect of these interest rate swaps and the related loans is that the customer pays a fixed rate of interest and the Corporation receives a floating rate. At March 31, 2019, the total notional amount of the interest rate swaps related to these loans was $91.6 million and the interest rate swaps had a net fair value of zero, with $1.4 million recognized in other assets and $1.4 million recognized in other liabilities. These swaps are not designated as hedging instruments; therefore, changes in fair value are recorded in other noninterest expense.

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, 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 $243.13 million at March 31, 2019, compared to $220.1 million at December 31, 2018. The increase since December 31, 2018 was primarily the result of an increase in nonpledged securities. The Corporation’s funding sources , including capacity, amount outstanding and amount available at March 31, 2019 are presented in Table 13.

TABLE 13: Funding Sources


	March 31, 2019
(Dollars in thousands)	Capacity		Outstanding		Available
Unsecured federal funds agreements	$	65,000	$	—	$	65,000
Repurchase lines of credit		50,000		—		50,000
Borrowings from FHLB		159,033		44,500		114,533
Borrowings from Federal Reserve Bank		19,871		—		19,871
Revolving bank line of credit		120,000		75,029		44,971
Total	$	413,904	$	119,529	$	294,375

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 Reserve Bank or the 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.

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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.

Capital Resources

The table below presents the Bank’s actual regulatory 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.


									Minimum To Be
									Well Capitalized
									Under Prompt
					Minimum Capital				Corrective Action
	Actual				Requirements				Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of March 31, 2019:
Total Capital (to Risk-Weighted Assets)
Corporation	$	184,854	15.0	%	$	98,505	8.0	%		N/A	N/A
C&F Bank		180,505	14.7			98,285	8.0		$	122,857	10.0	%
Tier 1 Capital (to Risk-Weighted Assets)
Corporation		169,577	13.8			73,879	6.0			N/A	N/A
C&F Bank		164,923	13.4			73,714	6.0			98,285	8.0
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
Corporation		144,577	11.7			55,409	4.5			N/A	N/A
C&F Bank		164,923	13.4			55,285	4.5			79,857	6.5
Tier 1 Capital (to Average Assets)
Corporation		169,577	11.3			59,998	4.0			N/A	N/A
C&F Bank		164,923	11.0			59,909	4.0			74,886	5.0

As of December 31, 2018:
Total Capital (to Risk-Weighted Assets)
Corporation	$	183,781	15.3	%	$	96,274	8.0	%		N/A	N/A
C&F Bank		181,685	15.1			96,088	8.0		$	120,110	10.0	%
Tier 1 Capital (to Risk-Weighted Assets)
Corporation		168,504	14.0			72,205	6.0			N/A	N/A
C&F Bank		166,437	13.9			72,066	6.0			96,088	8.0
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
Corporation		143,590	11.9			54,154	4.5			N/A	N/A
C&F Bank		166,437	13.9			54,050	4.5			78,072	6.5
Tier 1 Capital (to Average Tangible Assets)
Corporation		168,504	11.3			59,759	4.0			N/A	N/A
C&F Bank		166,437	11.2			59,666	4.0			74,582	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, intangible assets and deferred tax 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

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allowance for loan losses. In addition, the Corporation has made the one-time irrevocable election to 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. 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 15: Regulatory Requirements and Restrictions” in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2018.

In addition to the regulatory risk-based capital amounts presented above, the Bank must maintain a capital conservation buffer of additional total capital and CET1 as required by the Basel III Final Rule. The capital conservation buffer requirement was phased in from January 1, 2016 until January 1, 2019 in equal annual installments of 0.625 percent. Accordingly, at March 31, 2019, the Bank was required to maintain a capital conservation buffer of 2.5 percent and exceeded the total capital conservation buffer and the CET1 capital conservation buffer by 420 basis points and 640 basis points, respectively. At December 31, 2018, the Bank was required to maintain a capital conservation buffer of 1.875 percent and exceeded the total capital conservation buffer and the CET1 capital conservation buffer by 525 and 748 basis points, respectively.

The Corporation's capital resources may be affected by the Corporation's Repurchase Program, which was reauthorized by the Corporation's Board of Directors during the second quarter of 2018. Under the Repurchase Program the Corporation is authorized to purchase up to $5.0 million of its common stock. Repurchases under the program may be made through privately-negotiated transactions or open-market transactions, 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 program will be determined by management and the Board of Directors in their 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. The Repurchase Program is authorized through May 31, 2019. As of March 31, 2019, $2.2 million of the Corporation's common stock may be purchased under the Corporation's Repurchase Program.

Effects of Inflation and Changing Prices

The Corporation’s financial statements included herein have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP). U.S. GAAP presently requires the Corporation to measure financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The primary effect of inflation on the operations of the Corporation is reflected in increased operating costs. In management’s opinion, changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. Interest rates are highly sensitive to many factors that are beyond the control of the Corporation, including changes in the expected rate of inflation, the influence of general and local economic conditions and the monetary and fiscal policies of the United States government, its agencies and various other governmental regulatory authorities.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes from the quantitative and qualitative disclosures about market risk made in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018.

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 March 31, 2019 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,

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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 March 31, 2019 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, 2018.

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

Issuer Purchases of Equity Securities

The Corporation’s Board of Directors authorized a share repurchase program for the Corporation’s common stock (the Repurchase Program) in May 2014 and subsequently reauthorized the Repurchase Program annually, most recently in April 2018 for up to $5.0 million of the Corporation’s common stock through May 31, 2019. Repurchases under the 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 of the Exchange Act and/or Rule 10b-18 of the Exchange Act. As of March 31, 2019, $2.2 million of the Corporation’s common stock may be purchased under the Repurchase Program.

The following table summarizes repurchases of the Corporation’s common stock that occurred during the three months ended March 31, 2019.


					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
(Dollars in thousands, except for per share amounts)	Shares Purchased 1	per Share		Programs	Programs
January 1, 2019 - January 31, 2019	17,829	$	51.78	13,850	$	3,174
February 1, 2019 - February 28, 2019	10,400		50.22	10,400		2,652
March 1, 2019 - March 31, 2019	8,819		52.01	8,157		2,228
Total	37,048		51.40	32,407

During the three months ended March 31, 2019, 4,641 shares were withheld upon the vesting of restricted shares granted to employees of the Corporation and its subsidiaries in order to satisfy tax withholding obligations.

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ITEM 6. EXHIBITS


2.1	Agreement and Plan of Merger dated as of June 10, 2013 by and among C&F Financial Corporation, Special Purpose Sub, Inc. and Central Virginia Bankshares, Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K filed June 14, 2013)

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 (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 February 23, 2016 (incorporated by reference to Exhibit 3.1 to Form 8-K filed February 29, 2016)

10.19.8	Eighth Amendment to Amended and Restated Loan and Security Agreement by and among Wells Fargo Bank, N.A., various financial institutions and C&F Finance Company dated as of April 30, 2019

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.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Presentation Linkbase Document

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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:	May 8, 2019	By:	/s/ Thomas F. Cherry
			Thomas F. Cherry
			President and Chief Executive Officer
			(Principal Executive Officer)

Date:	May 8, 2019		/s/ Jason E. Long
			Jason E. Long
			Senior Vice President and Chief Financial Officer
			(Principal Financial and Accounting Officer)

EXHIBIT 10.19.8

EIGHTH AMENDMENT TO AMENDED AND RESTATED

LOAN AND SECURITY AGREEMENT

This Eighth Amendment to Amended and Restated Loan and Security Agreement (“ Amendment ”) is dated as of April _30__, 2019, by and among C&F FINANCE COMPANY and such other Persons joined to the Loan Agreement as Borrowers from time to time (collectively, the “ Borrowers ” and each a “ Borrower ”), WELLS FARGO BANK, N.A., successor by merger to Wells Fargo Preferred Capital, Inc., as agent for Lenders (in such capacity, “ Agent ”), and the financial institutions a party hereto as lenders (collectively, the “ Lenders ” and each is a “ Lender ”).

BACKGROUND

A. Borrowers, Lenders and Agent are parties to a certain Amended and Restated Loan and Security Agreement dated as of August 25, 2008 (as amended or modified from time to time, the “ Loan Agreement ”). Capitalized terms used but not otherwise defined in this Amendment shall have the meanings respectively ascribed to them in the Loan Agreement.

B. Borrowers have requested and Agent and Lenders have agreed to amend the Loan Agreement in certain respects, all on the terms and conditions set forth herein.

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby promise and agree as follows:

1. Amendment .

(a) Upon the effectiveness of this Amendment the Loan Agreement is hereby amended such that, after giving effect to all such amendments, it shall read in its entirety as attached hereto as Exhibit A .

(b) Schedule 7.14/Deposit Accounts . Schedule 7.14/Deposit Accounts to the Loan Agreement is attached hereto.

2. Effectiveness Conditions . This Amendment shall be effective upon the completion of the following conditions precedent (all agreements, documents and instruments to be in form and substance satisfactory to Agent and Agent’s counsel):

(a) Execution and delivery by Borrower and Lenders to Agent of this Amendment;

(b) Delivery by Borrower to Agent of fully executed copies of the amendments to the Citizens and Farmers Subordinated Debt Documents;

(c) Delivery to Agent of a certified copy of resolutions of each Borrower’s directors, members or managers, as applicable, authorizing the execution, delivery and performance of this Amendment and the amendment to the Citizens and Farmers Subordinated Debt Documents.

(d) Execution and/or delivery by the parties of all other agreements, instruments and documents requested by Agent to effectuate and implement the terms hereof and the Credit Documents.

3. Representations and Warranties . Each Borrower represents and warrants to Agent and Lenders that:

(a) All warranties and representations made to Agent under the Loan Agreement and the Credit Documents are true and correct as to the date hereof.

(b) The execution and delivery by Borrowers of this Amendment and the performance by each of them of the transactions herein contemplated (i) are and will be within such party’s powers, (ii) have been authorized by all necessary organizational action, and (iii) are not and will not (1) be in contravention of any order of any court or other agency of government, of law or any other indenture, agreement or undertaking to which Borrowers, or any of them, is a party or by which the property of Borrowers, or any of them, is bound, or (2) be in conflict with, result in a breach of, or constitute (with due notice and/or lapse of time) a default under any such indenture, agreement or undertaking or result in the imposition of any lien, charge or encumbrance of any nature on any of the properties of Borrowers, or any of them.

(c) This Amendment and any assignment, instrument, document, or agreement executed and delivered in connection herewith will be valid, binding and enforceable in accordance with its respective terms.

(d) No Event of Default or Default has occurred under the Loan Agreement or any of the other Credit Documents.

4. Business Operations . Each Borrower hereby agrees to continue to operate its business and operations in a manner consistent with its past business practice, continue to meet the standards generally observed by prudent finance companies and conform to its policies as have been previously disclosed to Agent in writing.

5. Representations and Release of Claims . Except as otherwise specified herein, the terms and provisions hereof shall in no manner impair, limit, restrict or otherwise affect the obligations of any Borrower or any third party to Agent and Lenders as evidenced by the Credit Documents. Each Borrower hereby acknowledges, agrees, and represents that (a) as of the date of this Amendment, there are no claims or offsets against, or defenses or counterclaims to, the terms or provisions of the Credit Documents or the other obligations created or evidenced by the Credit Documents; (b) as of the date of this Amendment, no Borrower has any claims, offsets, defenses or counterclaims arising from any of Agent’s or any Lender’s acts or omissions with respect to the Credit Documents or Agent’s or any Lender’s performance under the Credit Documents; and (c) each Borrower promises to pay to the order of Agent and Lenders the indebtedness evidenced by the Notes according to the terms thereof. In consideration of the modification of certain provisions of the Credit Documents, all as herein provided, and the other benefits received by Borrowers hereunder, each Borrower hereby RELEASES, RELINQUISHES and forever DISCHARGES Agent and Lenders, and their predecessors, successors, assigns, shareholders, principals, parents, subsidiaries, agents, officers, directors, employees, attorneys and representatives (collectively, the “ Released Parties ”), of and from any and all present claims, demands, actions and causes of action of any and every kind or character, whether known or unknown, which Borrowers, or any of them, has or may have against Released Parties arising out of or with respect to any and all transactions relating to the Loan Agreement, the Notes and the other Credit Documents occurring prior to the date hereof.

6. Collateral . As security for the payment of the Obligations and satisfaction by Borrowers of all covenants and undertakings contained in the Loan Agreement and the Credit Documents, each Borrower reconfirms the prior security interest and lien on, upon and to, its Collateral, whether now owned or hereafter acquired, created or arising and wherever located. Borrowers each hereby confirm and agree that all security interests and Liens granted to Agent for the ratable benefit of Lenders and Wells Fargo Affiliates continue in full force and effect and shall continue to secure the Obligations. All Collateral remains free and clear of any Liens other than Permitted Liens. Nothing herein contained is intended to in any manner impair or limit the validity, priority and extent of Agent’s existing security interest in and Liens upon the Collateral.

7. Acknowledgment of Indebtedness and Obligations . Borrowers hereby acknowledge and confirm that, as of the date of this Amendment, Borrowers are indebted to Agent and Lenders, without defense, setoff or counterclaim, under the Loan Agreement (in addition to any other indebtedness or obligations owed by Borrowers to Wells Fargo Affiliates) in the aggregate principal amount of $_75,029,209.41_, plus continually accruing interest and all fees, costs, and expenses, including reasonable attorneys’ fees, incurred through the date hereof.

8. Ratification of Credit Documents . This Amendment shall be incorporated into and deemed a part of the Loan Agreement. Except as expressly set forth herein, all of the terms and conditions of the Loan Agreement and Credit Documents are hereby ratified and confirmed and continue unchanged and in full force and effect. All references to the Loan Agreement shall mean the Loan Agreement as modified by this Amendment.

9. APPLICABLE LAW . THIS AMENDMENT AND ALL DOCUMENTS EXECUTED IN CONNECTION HEREWITH SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN THE STATE OF IOWA AND SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF IOWA.

10. WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS AMENDMENT OR ANY CREDIT DOCUMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR AGENT AND LENDERS TO ENTER INTO THIS AMENDMENT .

11. Counterparts . This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, and such counterparts together shall constitute one and the same respective agreement. Signature by facsimile or PDF shall also bind the parties hereto.

[SIGNATURES ON FOLLOWING PAGES]

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their respective duly authorized officers as of the date first above written.


BORROWER:	C&F FINANCE COMPANY

	By:	/s/ Thomas F. Cherry
	Name:	Thomas F. Cherry
	Title:	Executive Vice President


AGENT:	WELLS FARGO BANK, N.A.

	By:	/s/ William M. Laird
	Name:	William M. Laird
	Title:	Senior Vice President


LENDERS:	WELLS FARGO BANK, N.A.

	By:	/s/ William M. Laird
	Name:	William M. Laird
	Title:	Senior Vice President


	FIRST TENNESSEE BANK NATIONAL
	ASSOCIATION

	By:	/s/ Blake Chandler
	Name:	Blake Chandler
	Title:	Vice President

[SIGNATURE PAGE TO EIGHTH AMENDMENT]

EXHIBIT A

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

by and among

WELLS FARGO BANK, N.A.

As Agent

VARIOUS FINANCIAL INSTITUTIONS

As Lenders

AND

C & F FINANCE COMPANY

As Borrower

TABLE OF CONTENTS


		Page
ARTICLE 1 DEFINITIONS		1
Section 1.1	Certain Definitions	1
Section 1.2	Rules of Construction	10

ARTICLE 2 THE REVOLVING CREDIT FACILITY		11
Section 2.1	The Loan	11
Section 2.2	The Notes	11
Section 2.3	Method of Payment	11
Section 2.4	Extension and Adjustment of Maturity Date	12
Section 2.5	Use of Proceeds	12
Section 2.6	Interest	12
Section 2.7	Advances	13
Section 2.8	Prepayment	15
Section 2.9	Fees	16
Section 2.10	Regulatory Changes in Capital Requirements	16
Section 2.11	Sharing of Payments	17
Section 2.12	Pro Rata Treatment	17
Section 2.13	Existing Indebtedness	17
Section 2.14	Replacement of a Lender	17

ARTICLE 3 SECURITY
Section 3.1	Security Interest	18
Section 3.2	Financing Statements	18
Section 3.3	Documents to be Delivered to Agent	18
Section 3.4	Collections	19
Section 3.5	Additional Rights of Agent; Power of Attorney	20

ARTICLE 4 REPRESENTATIONS AND WARRANTIES		20
Section 4.1	Representations and Warranties as to Receivables	21
Section 4.2	Organization and Good Standing	22
Section 4.3	Perfection of Security Interest	22
Section 4.4	No Violations	23
Section 4.5	Power and Authority	23
Section 4.6	Validity of Agreements	23
Section 4.7	Litigation	23
Section 4.8	Compliance	23
Section 4.9	Accuracy of Information; Full Disclosure	23
Section 4.10	Taxes	24
Section 4.11	Indebtedness	24
Section 4.12	Investments	24
Section 4.13	ERISA	24
Section 4.14	Hazardous Wastes, Substances and Petroleum Products	24
Section 4.15	Solvency	25
Section 4.16	Business Location	25
Section 4.17	Capital Stock	25
Section 4.18	No Extension of Credit for Securities	25

ARTICLE 5 CONDITIONS TO LOAN		26
Section 5.1	Documents to be Delivered to Agent Prior to Effectiveness	26
Section 5.2	Conditions to all Advances	26

ARTICLE 6 AFFIRMATIVE COVENANTS		27
Section 6.1	Place of Business and Books and Records	27
Section 6.2	Reporting Requirements	27
Section 6.3	Books and Records	28
Section 6.4	Financial Covenants	28
Section 6.5	Compliance With Applicable Law	29
Section 6.6	Notice of Default	29
Section 6.7	Corporate Existence, Properties	29
Section 6.8	Payment of Indebtedness; Taxes	29
Section 6.9	Notice Regarding Any Plan	30
Section 6.10	Other Information	30
Section 6.11	Litigation, Enforcement Actions and Requests for Information	30
Section 6.12	Business Location, Legal Name and State of Organization	30
Section 6.13	Operations	31
Section 6.14	Further Assurances	31
Section 6.15	Chattel Paper/Jurisdictions	31

ARTICLE 7 NEGATIVE COVENANTS		31
Section 7.1	Payments to and Transactions with Affiliates	32
Section 7.2	Restricted Payments	32
Section 7.3	Indebtedness	32
Section 7.4	Guaranties	32
Section 7.5	Nature of Business	32
Section 7.6	Negative Pledge	32
Section 7.7	Investments and Acquisitions	33
Section 7.8	Compliance with Formula	33
Section 7.9	Mergers, Sales, Divestitures	33
Section 7.10	Use of Proceeds	33
Section 7.11	Ownership and Management	33
Section 7.12	Amendment to Subordinated Debt	33
Section 7.13	Electronic Chattel Paper Documents	33
Section 7.14	Deposit Accounts	33

ARTICLE 8 EVENTS OF DEFAULT		33
Section 8.1	Failure to Make Payments	33
Section 8.2	Information, Representations and Warranties	34
Section 8.3	Financial Covenants	34
Section 8.4	Collateral	34
Section 8.5	Defaults Under Other Agreements	34
Section 8.6	Certain Events	34
Section 8.7	Possession of Collateral	34
Section 8.8	Credit Documents	35
Section 8.9	Material Adverse Change	35
Section 8.10	Level Two Regulatory Event	35

ARTICLE 9 REMEDIES OF AGENT AND WAIVER		35
Section 9.1	Agent’s Remedies	35
Section 9.2	Waiver and Release by Borrowers	36
Section 9.3	No Waiver	36

ARTICLE 10 MISCELLANEOUS		36
Section 10.1	Indemnification and Release Provisions	36
Section 10.2	Amendments	37
Section 10.3	Applicable Law	37
Section 10.4	Notices	38
Section 10.5	Termination and Release	38
Section 10.6	Counterparts	39
Section 10.7	Costs, Expenses and Taxes	39
Section 10.8	Participation and Assignments	39
Section 10.9	Effectiveness of Agreement	41
Section 10.10	Jurisdiction and Venue	41
Section 10.11	Waiver of Jury Trial	41
Section 10.12	Review by Counsel	41
Section 10.13	Exchanging Information	41
Section 10.14	Acknowledgment of Receipt	42

ARTICLE 11 AGENT		42
Section 11.1	Appointment of Agent	42
Section 11.2	Nature of Duties of Agent	42
Section 11.3	Lack of Reliance on Agent	43
Section 11.4	Certain Rights of Agent	43
Section 11.5	Reliance by Agent	43
Section 11.6	Indemnification of Agent	43
Section 11.7	Agent in its Individual Capacity	44
Section 11.8	Holders of Notes	44
Section 11.9	Successor Agent	44
Section 11.10	Collateral Matters	45
Section 11.11	Delivery of Information	45
Section 11.12	Defaults	46

ARTICLE 12 INTER-BORROWER PROVISIONS		46
Section 12.1	Certain Borrower Acknowledgments and Agreements	46
Section 12.2	Maximum Amount of Joint and Several Liability	47
Section 12.3	Authorization of Borrower Agent by Borrowers	47

iii

AMENDED AND RESTATED

LOAN AND SECURITY AGREEMENT

This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is made as of the 25th day of August, 2008 by and among C & F FINANCE COMPANY, a Virginia corporation with its chief executive office at 4660 S. Laburnum Avenue, Richmond, VA 23231 (“Borrower Agent”) and such other Persons joined hereto from time to time as borrowers (collectively, the “Borrowers” and each individually is referred to as a “Borrower”), the financial institutions from time to time party hereto (collectively, the “Lenders” and each individually is referred to as a “Lender”), and WELLS FARGO BANK, N.A. as agent for Lenders (“Agent”), with its principal office located at 800 Walnut Street, Des Moines, Iowa 50309.

BACKGROUND

WHEREAS, Borrowers and Wells Fargo Bank, N.A., successor to Wells Fargo Preferred Capital, Inc. (“WFPC”) are parties to that certain Loan and Security Agreement dated as of August 1, 2005 (as has been amended or modified from time to time, the “Existing Loan Agreement”), pursuant to which WFPC established financing arrangements for the benefit of Borrowers. Borrowers and WFPC are parties to certain other instruments, documents and agreements related thereto (together with the Existing Loan Agreement, the “Existing Loan Documents”).

WHEREAS, Borrowers have requested that Agent and Lenders amend and restate the Existing Loan Agreement in its entirety, all on the terms and subject to the conditions set forth herein.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties covenant and agree as follows:

ARTICLE 1

DEFINITIONS

Section 1. 1 Certain Definitions . The terms defined in this Section 1.1, whenever used and capitalized in this Agreement shall, unless the context otherwise requires, have the respective meanings herein specified.

“ Advance ” means each advance of the Loan made to Borrowers pursuant to Section 2.1 hereof.

“ Advance Rate ” means the following percentage based upon the Collateral Performance Indicator as of the end of each month then most recently ended for which monthly reports have been delivered to Agent pursuant to Section 6.2:


Collateral Performance Indicator	Advance Rate
Less than 9%	85%
Greater than or equal to 9% but less than 11%	84%
Greater than or equal to 11% but less than 13%	83%
Greater than or equal to 13% but less than 15%	82%
Greater than or equal to 15%	81%

“ Affiliate ” means (i) any Person who or entity which directly or indirectly owns, controls or holds 5.0% or more of the outstanding beneficial interest in a Borrower; (ii) any entity of which 5.0% or more of the outstanding beneficial interest is directly or indirectly owned, controlled, or held by a Borrower; (iii) any entity which directly or indirectly is under common control with a Borrower; (iv) any officer, director, partner or employee of a Borrower or any Affiliate; or (v) any immediate family member of any Person who is an Affiliate. For purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract, or otherwise.

“ Agent ” means Wells Fargo Bank, N.A. and its respective successors and assigns.

“ Agreement ” means this Amended and Restated Loan and Security Agreement and all exhibits and schedules hereto, as the same may be amended, modified or supplemented from time to time.

“ Applicable Margin ” means 2.00%.

“ Assignment and Acceptance ” means an assignment and acceptance entered into by an assigning Lender and an assignee Lender, accepted by Agent, in accordance with Section 10.8 in form and substance satisfactory to Agent (in its sole and absolute discretion).

“ Authoritative Copy ” means, with respect to a Record, an electronic or tangible copy of such Record that is unique, identifiable and, except as otherwise provided in Section 9-105(b)(4), (5) and (6) of the UCC, is unalterable, and is marked “original” or has no mark or watermark that would indicate that it is a “copy” or “duplicate” or not an original or “authoritative” copy.

“ Availability Statement ” means the certificate in substantially the form of Exhibit B attached hereto and made part hereof to be submitted by Borrowers to Agent in accordance with the provisions of Section 2.1 and Section 3.3 hereof.

“ Bank Products ” means any one or more of the following types of services or facilities extended to a Borrower by the Agent or any Wells Fargo Affiliate: (a) Cash Management Services; (b) products under Hedging Agreements; (c) commercial credit card and merchant card services; and (d) leases and other banking products or services as may be requested by any Borrower or Subsidiary.

“ Bankruptcy Code ” means the United States Bankruptcy Code as now constituted or hereafter amended and any similar statute or law affecting the rights of debtors.

“ Books and Records ” means all of Borrowers’ original ledger cards, payment schedules, credit applications, contracts, lien and security instruments, guarantees relating in any way to the Collateral and other books and records or transcribed information of any type, whether expressed in electronic form in tapes, discs, tabulating runs, programs and similar materials now or hereafter in existence relating to the Collateral.

“ Borrower Agent ” means C&F Finance Company.

“ Borrowers’ Loan Account ” has the meaning assigned to that term in Section 2.1 of this Agreement.

“ Borrowing Base ” means, as of the date of determination and subject to change from time to time as described below, an amount equal to the Advance Rate multiplied by the aggregate balance of outstanding Eligible Receivables net of unearned interest, fees, commissions, discounts and reserves.

“ Business Day ” means any day except a Saturday, Sunday or other day on which national banks are authorized by law to close including, without limitation, United States federal government holidays.

“ Capital Base ” means the sum of (a) Borrowers’ Tangible Net Worth, plus (b) Subordinated Debt.

“ Cash Management Services ” any services provided from time to time by Agent or any Wells Fargo Affiliate to any Borrower or Subsidiary in connection with operating, collections, payroll, trust, or other depository or disbursement accounts, including automated clearinghouse, e-payable, electronic funds transfer, wire transfer, controlled disbursement, overdraft, depository, information reporting, lockbox and stop payment services.

“ Citizens and Farmers Subordinated Debt ” means Subordinated Debt incurred by Borrowers pursuant to the Citizens and Farmers Subordinated Debt Documents.

“ Citizens and Farmers Subordinated Debt Documents ” means that certain Business Loan Agreement dated as of June 29, 2010 between Borrower Agent and Citizens and Farmers Bank and all documents, instruments and agreements executed in connection therewith, as each may be amended, modified, replaced or restated.

“ Code ” means the Internal Revenue Code of 1986, as amended from time to time, and regulations with respect thereto in effect from time to time.

“ Collateral ” means

1. All of each Borrower’s Receivables, now owned or existing or hereafter arising or acquired;

2. All collateral, security and guaranties now or hereafter in existence for any Receivables;

3. All insurance related to any Receivables, to any collateral or security for any Receivables or to any obligor in respect of any Receivables and all proceeds of such insurance (including, without limitation, all non-filing insurance, credit insurance and credit life insurance related to any Receivables, to any collateral or security for any Receivables, or to any obligor in respect of any Receivables and all proceeds of such insurance);

4. All of each Borrower’s Books and Records related to any Receivables including all computers and computer related equipment, tapes and software;

5. All notes, drafts, deposit accounts, acceptances, documents of title, deeds, policies and policies or certificates of insurance (including without limitation credit insurance, credit life insurance, non-filing insurance and title insurance) and securities (domestic and foreign) and letter of credit rights now or hereafter owned by each Borrower or in which a Borrower has or at any time acquires an interest in connection with any Receivables;

6. All of each Borrower’s Accounts, Documents, Instruments, General Intangibles and

Chattel Paper as defined in Section 1.2 (b) of this Agreement, now owned or existing or hereafter arising or acquired, and all payment obligations owed to a Borrower, now owned or existing or hereafter arising or acquired; together with all collateral, security and guaranties now or hereafter in existence for any of the foregoing; and

7. All cash and non-cash proceeds of all the foregoing.

“ Collateral Performance Indicator ” means as of the end of each testing period the sum of:

(a) the 61+ day delinquency percentage (the percentage defined as (x) Receivables for which payment is 61 or more days contractually past due, divided by (y) total Receivables at such date ) , plus

(b) (i) net charge-offs for the 12 month period ending on such date divided by (ii) average Principal Receivables during the 12 month period ending on such date.

“ Collections ” means payment of principal, interest and fees on Receivables, the cash and non-cash proceeds realized from the enforcement of such Receivables and any security therefor, or the Collateral, proceeds of credit, group life or non-filing insurance, or proceeds of insurance on any real or personal property which is part of the collateral for the Receivables.

“ Commitment ” means with respect to each Lender, a commitment of such Lender to make its portion of the Advances in a principal amount up to each such Lender’s Commitment Percentage of the Maximum Principal Amount.

“ Commitment Percentage ” means, for any Lender, the percentage identified as the Commitment Percentage on Schedule I, as such percentage may be modified in connection with any assignment made in accordance with Section 10.8.

“ Consumer Finance Laws ” means all applicable laws and regulations, federal, state and local, relating to the extension of consumer credit, and the creation of a security interest in personal property or a mortgage in real property in connection therewith, as the case may be, and laws with respect to protection of consumers’ interests in connection with such transactions, including without limitation, any usury laws, the Federal Consumer Credit Protection Act, the Federal Fair Credit Reporting Act, RESPA, the Magnuson-Moss Warranty Act, the Federal Trade Commission’s Rules and Regulations and Regulations B and Z of the Federal Reserve Board, as any of the foregoing may be amended from time to time.

“ Consumer Purpose Loans ” means loans to one or more individuals the proceeds of which are used to purchase goods, services or merchandise for personal, household or family use.

“ Credit Documents ” means this Agreement, the Notes, the Subordination Agreement(s), the Custodian Agreement(s) and any and all additional documents, instruments, agreements and other writings executed and delivered pursuant to or in connection with this Agreement.

“ Custodian Agreement ” means that certain Custodian Agreement dated of even date herewith by and among Agent, Borrowers, and an individual custodian, substantially in the form of Exhibit C attached hereto and made part hereof, as the same may be amended, modified, restated or extended from time to time.

“ Debt ” means, as of the date of determination, all outstanding indebtedness (other than deferred

loan origination fees of Borrowers) including without limitation (a) all loans made hereunder to Borrowers; (b) accounts payable as of the date of determination; (c) income tax liabilities; (d) mortgages; (e) deposits and debenture instruments; and (f) Subordinated Debt.

“ Default ” means an event, condition or circumstance which, with the giving of notice or the passage of time, or both, would constitute an Event of Default.

“ Defaulting Lender ” has the meaning assigned to that term in Section 2.7(d) of this Agreement.

“ EBITDA Ratio ” means Borrowers’ earnings before payments of interest, taxes, depreciation and amortization expense for the twelve month period ending on the date of determination, net of any deficits from the amount required as an allowance for loan losses under Section 6.4(c) hereof and the amount of any accounts to be charged off, that have not been charged off, to the extent there is not an excess reserve, in Section 6.4(e) hereof, as a percent of interest expense during such twelve month period in accordance with GAAP principles pursuant to Section 6.4 of this Agreement.

“ Electronic Chattel Paper ” shall have the meaning given to such term in the UCC.

“ Electronic Collateral Control Agreement ” means that certain Acknowledgement of Pledge by and among Electronic Collateral Custodian, Borrowers and Agent, as the same may be amended, modified, restated or extended from time to time, pursuant to which the Electronic Collateral Custodian agrees to act as custodian for Agent with respect to any Collateral created, acquired or converted into electronic form, including but not limited to, Chattel Paper and Electronic Chattel Paper, and hold and control in electronic form, the single Authoritative Copy of such Collateral.

“ Electronic Collateral Custodian ” means RouteOne LLC, a Michigan limited liability company, or such other Person acceptable to Agent.

“ Eligible Receivables ” means, as of the date of determination, Receivables (net of unearned interest, fees, unearned discounts, reserves and commissions thereon) which are Chattel Paper, which conform to the warranties set forth in Section 4.1 hereof, in which Agent has a validly perfected first priority Lien, and which are not any of the following: (i) Receivables for which a payment is 61 or more days past due on a contractual basis; (ii) Receivables subject to litigation, foreclosure, repossession or bankruptcy proceedings or the account debtor with respect to which is a debtor under the Bankruptcy Code unless they are contractually current; (iii) Receivables from officers, employees or shareholders of any Borrower or any Affiliate; (iv) Receivables which have been deferred or extended more than twice during any rolling 12 month period; (v) Receivables which have been restructured or modified as a result the account debtor’s delinquencies; (vi) Interest Only Accounts; (vii) Real Estate Related Accounts; (viii) Receivables arising from deficiency balance accounts; (ix) Receivables for which Custodian or Agent has not received the corresponding original certificate of title within 120 days from the origination of such Receivable; (x) Receivables with balloon payments; (xi) Receivables purchased from a dealer to the extent such Receivables exceed an amount equal to 15% of gross Receivables; (xii) Receivables serviced, collected or enforced by a Person other than a Borrower without prior written consent of Agent; (xiii) for Receivables originated on or after December 21, 2017, Receivables with a contractual term in excess of 75 months; (xiv) for Receivables originated on or after December 21, 2017, Receivables with a principal balance in excess of $40,000; and (xv) Receivables which, in Agent’s reasonable credit judgment, do not constitute acceptable collateral.

“ Environmental Control Statutes ” means any federal, state, county, regional or local laws governing the control, storage, removal, spill, release or discharge of Hazardous Substances,

including without limitation CERCLA, the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and the Hazardous and Solid Waste Amendments of 1984, the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1976, the Hazardous Materials Transportation Act, the Emergency Planning and Community Right to Know Act of 1986, the National Environmental Policy Act of 1975, the Oil Pollution Act of 1990, any similar or implementing state law, and in each case including all amendments thereto and all rules and regulations promulgated thereunder and permits issued in connection therewith.

“ EPA ” means the United States Environmental Protection Agency, or any successor thereto.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, all amendments thereto, and any successor statute of similar import, and regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed to refer to any successor sections.

“ Event of Default ” has the meaning assigned to that term in Article 8 of this Agreement.

“ Excess Availability ” means, as of any date of determination, a percentage equal to (a) the difference between (i) the Borrowing Base, minus (ii) the sum of the amount of outstanding Advances, divided by (b) the Borrowing Base.

“ GAAP ” means generally accepted accounting principles as in effect from time to time in the United States, consistently applied; provided , however , that all calculations relative to liabilities shall be made without giving effect to Statement of Financial Accounting Standards No. 159.

“ General Intangibles ” has the meaning assigned to that term in Section 1.2(b).

“ Governmental Authority ” means any federal, state, local, or other governmental or administrative body, instrumentality, board, department, or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar dispute-resolving panel or body (including, without limitation, Local Authorities).

“ Hazardous Substance ” means any toxic, reactive, corrosive, carcinogenic, flammable or hazardous pollutant or other substance, including without limitation petroleum and items defined in Environmental Control Statutes as “hazardous substances,” “hazardous wastes,” “pollutants” or “contaminants.”

“ Hedging Agreement ” means an agreement relating to any interest rate hedge, exchange, swap, cap, floor, collar, option, forward, cross right or obligation, or combination thereof or similar transaction, with respect to interest rate, foreign exchange, currency, commodity, credit or equity risk (including, without limitation, any ISDA Master Agreement), together with any related schedules and confirmations.

“ Intangible Assets ” means all assets of any Person which would be classified in accordance with GAAP as intangible assets, including without limitation (a) all franchises, licenses, permits, patents, applications, copyrights, trademarks, trade names, goodwill, experimental or organization expenses and other like intangibles, and (b) unamortized debt discount and expense and unamortized stock discount and expense.

“ Interest-Only Accounts ” means those Receivables on which collections are applied entirely to interest and expense charges, with no portion thereof being required to reduce the principal balance on the loan prior to the stated maturity of such accounts.

“ Level One Regulatory Event ” means the formal commencement by written notice by any federal or state Governmental Authority of any inquiry, investigation, legal action or similar proceeding against any Borrower or any of their Subsidiaries challenging its authority to originate, hold, own, service, collect or enforce Receivables generally or any category or group of Receivables that is material to the business of such Borrower or such Subsidiary, or otherwise alleging any material non-compliance by any Borrower or any of their Subsidiaries with any applicable laws related to originating, holding, collecting, servicing or enforcing Receivables generally or any category or group of Receivables that is material to the business of such Borrower or such Subsidiary (which shall include, without limitation, the issuance of a civil investigative demand by the Consumer Financial Protection Bureau that meets the criteria set forth above), which inquiry, investigation, legal action or proceeding is not released or terminated in a manner reasonably acceptable to Agent within thirty (30) calendar days of commencement thereof.

“ Level Two Regulatory Event ” means the issuance or entering of any stay, order, judgment, cease and desist order, injunction, temporary restraining order, or other judicial or non-judicial sanction, order or ruling against any Borrower or any of their Subsidiaries related in any way to the originating, holding, pledging, collecting, servicing or enforcing of Receivables generally or any category or group of Receivables that is material to the business of such Borrower or such Subsidiary.

“ LIBOR Rate ” means the greater of (a) 0.30% or (b) one (1) month London Interbank Offered Rate for any day as found in the Wall Street Journal, Interactive Edition, or any successor edition/publication or such replacement index rate as may be selected by Agent in its sole discretion if such rate ceases to be published or ceases to exist.

“ Lien ” means any mortgage, deed of trust, pledge, lien, security interest, charge or other encumbrance or security arrangement of any nature whatsoever, including without limitation any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security.

“ Loan ” means the aggregate principal amount advanced by Lenders to Borrowers pursuant to Section 2.1 of this Agreement, together with interest accrued thereon and fees and costs incurred in connection therewith.

“ Loan Availability ” means the amount available for Advances under this Agreement on any date as determined in accordance with the Availability Statement submitted to Agent on such date in accordance with Section 3.3.

“ Local Authorities ” means individually and collectively the state and local governmental authorities which govern the business and operations owned or conducted by Borrowers or any of them.

“ Maturity Date ” means February ___, 2022, as such date may be extended from time to time in accordance with the provisions of Section 2.4 of this Agreement.

“ Maximum Principal Amount ” means $120,000,000.

“ Notes ” mean collectively, the promissory notes to this Agreement of Borrowers in favor of each Lender in substantially the form of Exhibit E attached hereto and made part hereof, evidencing the joint and several obligation of Borrowers to repay the Loan, and any and all amendments, renewals, replacements or substitutions therefore, and each is referred to individually as a “Note.”

“ Obligations ” means (a) each and every draft, liability and obligation of every type and description which Borrowers may now or at any time hereafter owe to Agent and Lenders (whether such debt, liability or obligation now exists or is hereafter created or incurred, whether it arises in a transaction involving Agent and/or any Lender alone or in a transaction involving other creditors of Borrowers, or any of them, and whether it is direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or sole, joint, several or joint and several), and including specifically, but not limited to, all indebtedness of Borrowers arising under this Agreement, the Notes, any fee letter, a Letter of Credit or any other loan or credit agreement between or among a Borrower or Borrowers and Agent and/or any Lender, whether now in effect or hereafter entered into and including, without limitation, all Loans and (b) payment or performance, as the case may be, of all obligations of Borrowers with respect to Bank Products.

“ Order Form ” means that certain Order Form by and among Electronic Collateral Custodian and Borrower, as the same may be amended, modified, restated or extended from time to time, under which Borrower is licensed to use Electronic Collateral Custodian’s Repository Services (as defined therein).

“ Participant ” has the meaning assigned to that term in Section 10.8 of this Agreement.

“ PBGC ” means the Pension Benefit Guaranty Corporation, or any successor thereto.

“ Permitted Lien ” means the junior subordinated Lien granted by Borrowers to Citizens and Farmers Bank to secure the Subordinated Debt owing to Citizens and Farmers Bank pursuant to the Citizens and Farmers Subordinated Debt Documents (as defined in the First Amendment); provided, however, the maximum amount of Subordinated Debt secured by such Lien shall not at any time exceed $50,000,000.

“ Person ” means all natural persons, corporations, limited partnerships, general partnerships, joint stock companies, limited liability companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and federal and state governments and agencies or regulatory authorities and political subdivisions thereof, or any other entity.

“ Plan ” means any employee benefit plan subject to the provisions of Title IV of ERISA which is maintained in whole or in part for employees of Borrowers or any Affiliate of Borrowers.

“ Principal Receivables ” means as of the date of determination Receivables, net of unearned finance charges and insurance commissions.

“ Property ” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

“ Real Estate Related Accounts ” means Receivables arising from loans (a) the proceeds of which are used to purchase or improve real property; or (b) collateralized or secured by an interest in real property; and shall include without limitation home equity accounts.

“ Receivables ” means all lien, title retention and security agreements, chattel mortgages, chattel paper, bailment leases, installment sale agreements, instruments, consumer finance paper and/or promissory notes securing and evidencing loans made, and/or time sale transactions acquired, by a Borrower (including Electronic Chattel Paper).

“ Regulatory Event ” means either a Level One Regulatory Event or a Level Two Regulatory Event.

“ Replacement Lender ” has the meaning assigned to that term in Section 2.14 of this Agreement.

“ Reportable Event ” has the meaning assigned to that term in Section 4.13 of this Agreement.

“ Request for Advance ” means the certificate in the form of Exhibit A attached hereto and made part hereof to be delivered by Borrowers to Agent as a condition of each Advance pursuant to Section 2.7 hereof.

“ Required Lenders ” shall mean, at any time, Lenders which are then in compliance with their obligations hereunder and holding in the aggregate at least fifty one percent (51%) of (a) the Commitment Percentage (and participation interest) or (b) if this Agreement has been terminated, the outstanding Loans and participation interest; provided however that “Required Lenders” shall mean all Lenders if at such time there are fewer than three (3) Lenders.

“ Restricted Payments ” means payments by Borrowers, or any of them, which constitute (a) redemptions, repurchases, dividends or distributions of any kind with respect to a Borrower’s capital stock or any warrants, rights or options to purchase or otherwise acquire any shares of a Borrower’s capital stock or (b) payments of principal or interest on Subordinated Debt.

“ Schedule of Receivables and Assignment ” means a schedule in the form of Exhibit F attached hereto and made part hereof to be submitted by Borrowers to Agent pursuant to Section 2.1 and Section 3.3 hereof, describing the Receivables assigned and pledged to Agent, for the benefit of Lenders, on the date hereof and thereafter for the period to which such schedule relates and confirming the assignment and pledge of such Receivables.

“ Senior EBITDA Ratio ” means Borrowers’ earnings before payments of interest, taxes, depreciation and amortization expense for the twelve month period ending on the date of determination, net of any deficits from the amount required as an allowance for loan losses under Section 6.4(c) hereof and the amount of any accounts to be charged off, that have not been charged off, to the extent there is not an excess reserve, in Section 6.4(e) hereof, as a percent of interest expense solely with respect to the Obligations during such twelve month period in accordance with GAAP principles pursuant to Section 6.4 of this Agreement.

“ Senior Debt ” means all indebtedness and liabilities (including accounts payable) of Borrowers, or any of them, not expressed to be subordinated or junior to any other indebtedness of Borrowers, or any of them.

“ Subordinated Debt ” means any indebtedness of Borrowers for borrowed money and which shall contain provisions subordinating the payment of such indebtedness and the liens and security interests securing such indebtedness to Senior Debt, in form, substance and extent acceptable to Agent, in its sole discretion. For the avoidance of doubt, Subordinated Debt shall include the Additional Subordinated Debt, and any reference in the Loan Agreement or any other Credit Document to Subordinated Debt shall include the Citizens and Farmers Subordinated Debt.

“ Subordination Agreement ” means, individually, and “ Subordination Agreements ” means, collectively, the Subordination Agreements substantially in the form of Exhibit G attached hereto and made part hereof, as the same may be amended, modified, restated or extended from time to time.

“ Subsidiary ” of any entity means any corporation, limited liability company, partnership or other legal entity of which such entity directly or indirectly owns or controls at least a majority of the outstanding stock or other equity interest having general voting power. For purposes of this

definition, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract, or otherwise.

“ Tangible Net Worth ” means, at any date, the amount of the capital stock liability of Borrowers on a consolidated basis (but excluding the effect of intercompany transactions) plus (or minus in the case of a deficit) its capital surplus and earned surplus minus, to the extent not otherwise excluded (i) the cost of treasury shares; (ii) the amount equal to the value shown on its books of Intangible Assets, including the excess paid for assets acquired over their respective book values on the books of the corporation from which acquired; (iii) investments in and loans to any Subsidiary or Affiliate or to any shareholder, director or employee of Borrowers, any Subsidiary or any Affiliate, and (iv) any deficits from the amount required as an Allowance for Loan Losses under Section 6.4(c) hereof and, to the extent there is not an excess reserve, the amount of any accounts to be charged off, that have not been charged off, in Section 6.4(e) hereof.

“ Termination Date ” means the earlier of (a) the Maturity Date; or (b) the date on which the Commitments are terminated and the Loan becomes due and payable pursuant to Section 9.1.

“ Total Liabilities ” means all liabilities of Borrowers, as determined in accordance with GAAP.

“ UCC ” means the Uniform Commercial Code as in effect in the State of Iowa from time to time.

“ Wells Fargo Affiliate ” means in relation to Agent, any entity controlled, directly or indirectly, by Agent, any entity that controls, directly or indirectly, Agent or any entity directly or indirectly under common control with Agent. For this purpose, “control” of any entity means ownership of a majority of the voting power of the entity.

Section 1. 2 Rules of Construction .

(a) Accounting Term . All accounting terms not specifically defined herein shall be construed in accordance with GAAP; provided , however , that if at any time any change in GAAP would affect the computation of any covenant (including the computation of any financial covenant) and/or pricing grid set forth in this Agreement or any other Credit Document, Borrowers and Agent shall negotiate in good faith to amend such covenant and/or pricing grid to preserve the original intent in light of such change; provided further , that until so amended, (i) such covenant and/or pricing grid shall continue to be computed in accordance with the application of GAAP prior to such change and (ii) Borrowers shall provide to Agent a written reconciliation in form and substance reasonably satisfactory to Agent, between calculations of such covenant and/or pricing grid made before and after giving effect to such change in GAAP. Whenever the term “Borrowers” is used in respect of a financial covenant or a related definition, it shall be understood to mean Borrowers and their Subsidiaries on a consolidated basis, unless the context clearly requires otherwise.

(b) Uniform Commercial Code . Except as otherwise provided herein, terms used in the foregoing definitions or elsewhere in this Agreement that are defined in the Uniform Commercial Code, including without limitation, “ Accounts ”, “ Documents ”, “ Instruments ”, “ General Intangibles ”, and “ Chattel Paper ” shall have the respective meanings given to such terms in the Uniform Commercial Code as in effect in the State of Iowa from time to time.

ARTICLE 2

THE REVOLVING CREDIT FACILITY

Section 2. 1 The Loan . Until the Termination Date Borrowers may request Lenders to make Advances to Borrowers and subject to the terms and conditions of this Agreement each Lender severally agrees to lend such Lender’s Commitment Percentage of each requested Advance up to such Lender’s Commitment. The aggregate unpaid principal amount at any one time outstanding of all Advances shall not exceed the lesser of the Maximum Principal Amount or the Borrowing Base in effect as of the date of determination.

(a) Agent shall establish on its books an account in the name of Borrowers (the “Borrowers’ Loan Account”). A debit balance in Borrowers’ Loan Account shall reflect the amount of Borrowers’ indebtedness to Agent and Lenders from time to time by reason of Advances and other appropriate charges (including, without limitation, interest charges) hereunder. At least once each month, Agent shall provide to Borrowers a statement of Borrowers’ Loan Account which statement shall be considered correct and accepted by Borrowers and conclusively binding upon Borrowers unless Borrowers notify Agent to the contrary within 30 days of Agent’s providing such statement to Borrowers.

(b) Borrowers shall prepare a completed Availability Statement as of each month end and forward such statement to Agent by the 20th day of the following month.

(c) Each Advance made hereunder shall, in accordance with GAAP, be entered as a debit to Borrowers’ Loan Account, and shall be in a principal amount which, when aggregated with all other Advances then outstanding, shall not exceed the lesser of the then effective Borrowing Base or Maximum Principal Amount.

(d) The Loan shall be due and payable on the Termination Date. Upon the occurrence of an Event of Default, Agent shall have rights and remedies available to it under Article 9 of this Agreement.

(e) Agent has the right at any time, and from time to time, in its reasonable credit judgment (but without any obligation) to set aside reasonable reserves against the Borrowing Base in such amounts as it may deem appropriate, including with respect to Regulatory Events.

Section 2. 2 The Notes . The indebtedness of Borrowers to each Lender hereunder shall be evidenced by a separate Note executed by Borrowers in favor of such Lender in the principal amount equal to each such Lender’s Commitment Percentage of the Maximum Principal Amount, which shall be substantially in the form of Exhibit E attached hereto and made part hereof, dated the same date as this Agreement. The principal amount of the Notes will be the Maximum Principal Amount; provided, however, that notwithstanding the face amount of the Notes, Borrowers’ liability under the Notes shall be limited at all times to the actual indebtedness (principal, interest and fees) then outstanding and owing by Borrowers to Agent and Lenders hereunder.

Section 2. 3 Method of Payment . Borrowers shall make all payments of principal and interest on the Notes in lawful money of the United States of America and in funds immediately available by wire transfer, to Agent at its address referred to in Section 10.3 of this Agreement or at such other address as Agent otherwise directs. Whenever any payment is due on a day, which is not

a Business Day, the date for payment shall be extended to the next succeeding Business Day and interest shall be paid for such extended time. As soon as practicable after Agent receives payment from Borrowers, but in no event later than one (1) Business Day after such payment has been made, subject to Section 2.7, Agent will cause to be distributed like funds relating to the payment of principal, interest or fees (other than amounts payable to Agent to reimburse Agent for fees and expenses payable solely to it pursuant to the terms of this Agreement) or expenses payable to Agent and Lenders in accordance with the terms of this Agreement, and in like funds relating to the payment of any such other amounts payable to Lenders. Borrowers’ obligations to Lenders with respect to such payments shall be discharged by making such payments to Agent pursuant to this Section 2.3 or, if not timely paid or any Event of Default or Default then exists, may be added to the principal amount of the Loans outstanding.

Section 2. 4 Extension and Adjustment of Maturity Date . Upon the mutual agreement of all parties to this agreement, the Maturity Date may be extended. Any extension to the Maturity Date shall be in writing and executed by the authorized representatives of each party.

Section 2. 5 Use of Proceeds . Advances shall be used to finance Borrowers’ portfolios of Consumer Purpose Loans which constitute Eligible Receivables and for other lawful corporate purposes except as limited under this Agreement.

Section 2. 6 Interest .

(a) In the absence of an Event of Default or Default hereunder, and prior to the Termination Date, the outstanding balance of the Loans will bear interest at an annual rate at all times equal to the LIBOR Rate plus the Applicable Margin; provided, however, (i) during each period that the outstanding principal balance of the Loan is less than an amount equal to 62.5% of the Maximum Principal Amount (“ Minimum Balance ”), Borrowers shall pay interest at such rate per annum based upon the Minimum Balance; and (ii) Agent shall at all times be entitled to retain, solely for its own account, and not remit to Lenders from such monthly interest payment an interest payment in an amount equal to interest on the outstanding balance of the Loan at an annual rate at all times equal to 10 basis points.

(b) Interest shall be payable monthly in arrears on the first day of each month commencing on the first such date after the first Advance under the Loan and continuing until the Commitments are terminated and the Obligations are indefeasibly paid in full. Interest as provided hereunder will be calculated on the basis of a 360 day year and the actual number of days elapsed. The rate of interest provided for hereunder is subject to increase or decrease when and as the LIBOR Rate increases or decreases in an amount corresponding to the change in the LIBOR Rate. Any such change in the interest rate hereunder shall take effect the first day of the month following a change in the LIBOR Rate.

(c) Notwithstanding the foregoing, upon the occurrence and during the continuance of an Event of Default or Default hereunder, including after maturity and before and after judgment, Borrowers hereby agree to pay to Lenders interest on the outstanding principal balance of the Loan and any other obligations and, to the extent permitted by law, overdue interest with respect thereto, at the rate of 2.50% per annum above the rate otherwise applicable to the Loan.

Section 2. 7 Advances .

(a) Borrower Agent shall notify Agent in writing not later than 1:00 p.m., Philadelphia, time, on the date of each requested Advance, specifying the date, amount and purpose of the Advance. Such notice shall be in the form of the Request for Advance attached hereto and made part hereof as Exhibit A , shall be certified by the President or Treasurer (or such other authorized Person as Borrower Agent directs from time to time) of Borrower Agent and shall contain the following information and representations, which shall be deemed affirmed and true and correct as of the date of the requested Advance:

(i) the aggregate amount of the requested Advance, which shall be in multiples of $5,000 but not less than the lesser of $5,000 or the unborrowed balance of the Borrowing Base;

(ii) confirmation of Borrowers’ compliance with Sections 2.1(c), 6.4 and 7.1 through 7.12 both immediately prior to and after making such Advance; and

(iii) statements that the representations and warranties set forth in Article 4 are true and correct as of the date of the Advance; no Event of Default or Default has occurred and is then continuing; and that there has been no material adverse change in Borrowers’ financial condition, operations or business since the date of the monthly and audited annual financial statements most recently delivered by Borrowers to Agent pursuant to Sections 5.1(l) or 6.2 of this Agreement.

(b) Agent shall give to each Lender prompt notice (but in no event later than 1:00 P.M., Philadelphia time on the date of Agent’s receipt of notice from Borrowers) of each Request for Advance by facsimile. No later than 2:00 P.M., Philadelphia time on the date on which an Advance is requested to be made pursuant to the applicable Request for Advance, each Lender will make available to Agent at the address of Agent set forth on Schedule I, in immediately available funds, its Commitment Percentage of such Advance requested to be made. Unless Agent shall have been notified by any Lender prior to the date of Advance that such Lender does not intend to make available to Agent its portion of the Advance to be made on such date, Agent may assume that such Lender will make such amount available to Agent as required above and Agent may, in reliance upon such assumption, make available the amount of the Advance to be provided by such Lender. Upon fulfillment of the conditions set forth in Sections 2.7(a) and 5.2 for such Advance, and as soon as practicable after receipt of funds from Lenders (but in any event not later than 2:00 P.M., Philadelphia time) Agent will make such funds as have been received from Lenders available to Borrowers at the account specified by Borrowers in such Request for Advance.

(c) Because Borrowers anticipate requesting Advances on a daily basis and repaying the Advances on a daily basis through Collections, resulting in the amount of outstanding Advances fluctuating from day to day, in order to administer the Loan in an efficient manner and to minimize the transfer of funds between Agent and Lenders, Lenders hereby instruct Agent, and Agent may (in its sole discretion, without any obligation) (i) make available, on behalf of Lenders, the full amount of all Advances requested by Borrowers, not to exceed $5,000,000.00 in the aggregate at any one time outstanding, without giving each Lender prior notice of the proposed Advance, of such Lender’s Commitment Percentage thereof and the other matters covered by the Request for Advance and (ii) if Agent has made any such amounts available as provided in clause (i), upon repayment of

Loans by Borrowers, first apply such amounts repaid directly to the amounts made available by Agent in accordance with clause (i) and not yet settled as described below. If Agent makes an Advance on behalf of Lenders, as provided in the immediately preceding sentence, the amount of outstanding Loans and each Lender’s Commitment Percentage thereof shall be computed weekly rather than daily and shall be adjusted upward or downward on the basis of the amount of outstanding Loans as of 5:00 P.M., Philadelphia time on the Business Day immediately preceding the date of each computation; provided , however , that Agent retains the absolute right at any time or from time to time to make the afore-described adjustments at intervals more frequent than weekly. Agent shall deliver to each of Lenders at the end of each week, or such lesser period or periods as Agent shall determine, a summary statement of the amount of outstanding Loans for such period (such week or lesser period or periods being hereafter referred to as a “Settlement Period”). If the summary statement is sent by Agent and received by Lenders prior to 12:00 Noon, Philadelphia time on any Business Day each Lender shall make the transfers described in the next succeeding sentence no later than 3:00 P.M., Philadelphia time on the day such summary statement was sent; and if such summary statement is sent by Agent and received by Lenders after 12:00 Noon, Philadelphia time on any Business Day, each Lender shall make such transfers no later than 3:00 P.M., Philadelphia time on the next succeeding Business Day. If in any Settlement Period, the amount of a Lender’s Commitment Percentage of the Loans is in excess of the amount of Loans actually funded by such Lender, such Lender shall forthwith (but in no event later than the time set forth in the next preceding sentence) transfer to Agent by wire transfer in immediately available funds the amount of such excess; and, on the other hand, if the amount of a Lender’s Commitment Percentage of the Loans in any Settlement Period is less than the amount of Loans actually funded by such Lender, Agent shall forthwith transfer to such Lender by wire transfer in immediately available funds the amount of such difference. The obligation of each of Lenders to transfer such funds shall be irrevocable and unconditional, without recourse to or warranty by Agent and made without setoff or deduction of any kind. Each of Agent and Lenders agree to mark their respective books and records at the end of each Settlement Period to show at all times the dollar amount of their respective Commitment Percentages of the outstanding Loans. Because Agent on behalf of Lenders may be advancing and/or may be repaid Loans prior to the time when Lenders will actually advance and/or be repaid Loans, interest with respect to Loans shall be allocated by Agent to each Lender (including Agent) in accordance with the amount of Loans actually advanced by and repaid to each Lender (including Agent) during each Settlement Period and shall accrue from and including the date such Advance is made by Agent to but excluding the date such Loans are repaid by Borrower in accordance with Section 2.3 or actually settled by the applicable Lender as described in this Section 2.7(c). All such Advances made by Agent on behalf of Lenders hereunder shall bear interest at the interest rate applicable hereunder for Advances.

(d) If the amounts described in subsection (b) or (c) of this Section 2.7 are not in fact made available to Agent by a Lender (such Lender being hereinafter referred to as a “Defaulting Lender”) and Agent has made such amount available to Borrowers, Agent shall be entitled to recover such corresponding amount on demand from such Defaulting Lender. If such Defaulting Lender does not pay such corresponding amount forthwith upon Agent’s demand therefor, Agent shall promptly notify Borrowers and Borrowers shall immediately (but in no event later than two (2) Business Days after such demand) pay such corresponding amount to Agent. Agent shall also be entitled to recover (i) from such Defaulting Lender and Borrowers, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by Agent to Borrowers to the date such corresponding amount is recovered by Agent, at a rate per annum equal to either (A) if paid by such Defaulting Lender, the overnight federal funds rate or (B) if paid by

Borrowers, the then applicable rate of interest, calculated in accordance with Section 2.6, and (ii) from such Defaulting Lender, an amount equal to any costs (including reasonable legal expenses) and losses incurred as a result of the failure of such Defaulting Lender to provide such amount as provided in this Agreement. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights which Borrowers may have against any Lender as a result of any default by such Lender hereunder, including, without limitation, the right of Borrowers to seek reimbursement from any Defaulting Lender for any amounts paid by Borrowers under clause (ii) above on account of such Defaulting Lender’s default.

(e) The failure of any Lender to make its portion of the Advance to be made by it as part of any Advance shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Advance. The amounts payable by each Lender shall be a separate and independent obligation.

(f) Each Lender shall be entitled to earn interest at the then applicable rate of interest, calculated in accordance with Section 2.6, on outstanding Loans which it has funded to Agent from the date such Lender funded such Advance to, but excluding, the date on which such Lender is repaid with respect to the Loan.

(g) Notwithstanding the obligation of Borrowers to send written confirmation of a Request for Advance, in the event that Agent agrees to accept a Request for Advance made by telephone, such telephonic request shall be binding on Borrowers whether or not written confirmation is sent by Borrowers or requested by Agent. Agent may act prior to the receipt of any requested written confirmation, without any liability whatsoever, based upon telephonic notice believed by Agent in good faith to be from a Borrowers or their agents. Agent’s records of the terms of any telephonic requests for Advances shall be conclusive on Borrowers in the absence of gross negligence or willful misconduct on the part of Agent in connection therewith.

(h) Nothing contained in this Section 2.7 or otherwise in this Agreement shall impair or limit any claim of Borrowers against a Defaulting Lender (including, without limitation, expenses incurred by Borrowers by reason of any such default) who breaches its commitment to fund Advances hereunder.

(i) Each request for an Advance pursuant to this Section 2.7 shall be irrevocable and binding on Borrowers.

Section 2. 8 Prepayment .

(a) Optional Prepayments . Borrowers may prepay the Loan from time to time, in full or in part not to exceed $5,000,000 without notice, and, in part, in excess of $5,000,000 upon 5 Business Day’s prior notice to Agent without premium or penalty, provided that (i) in the event Borrowers repay the Loan in full or the Obligations are accelerated prior to the date which is twenty four (24) months before the Maturity Date, Borrower shall pay the sum equal to 0.75% of the Maximum Principal Amount as a prepayment fee, (ii) in the event Borrowers repay the Loan in full or the Obligations are accelerated on or after the date which is twenty four (24) months before the Maturity Date but prior to the date which is twelve (12) months before the Maturity Date, Borrowers

shall pay the sum equal to 0.50% of the Maximum Principal Amount as a prepayment fee, (iii) in the event Borrowers repay the Loan in full or the Obligations are accelerated on or after the date which is twelve (12) months before the Maturity Date but prior to the date which is six (6) months before the Maturity Date, Borrower shall pay the sum equal to 0.25% of the Maximum Principal Amount as a prepayment fee; (iv) prepayments shall be in a minimum amount of $10,000 and $10,000 increments in excess thereof; and (iii) partial prepayments prior to the Termination Date shall not reduce Lenders’ Commitments under this Agreement and may be reborrowed, subject to the terms and conditions hereof for borrowing, and partial prepayments will be applied first to accrued interest and fees and then to outstanding Advances. Each Borrower acknowledges that the above described fee is an estimate of Lenders’ damages in the event of early termination and is not a penalty. In the event of termination of the credit facility established pursuant to this Agreement, all of the Obligations shall be immediately due and payable upon the termination date stated in any notice of termination. All undertakings, agreements, covenants, warranties and representations of Borrowers contained in the Credit Documents shall survive any such termination, and Agent shall retain its liens in the Collateral and all of its rights and remedies under the Credit Documents notwithstanding such termination until Borrowers have paid the Obligations to Agent and Lenders, in full, in immediately available funds, together with the applicable prepayment fee, if any. Notwithstanding anything to the contrary contained herein, Borrowers shall not be obligated to pay the above described prepayment fee if Borrowers repay the Loan in full as a result of Agent making a demand for payment under Section 2.10 hereof and Borrowers have not exercised their rights under Section 2.14 hereof as a result of such demand.

(b) Mandatory Prepayments . In the event that amounts outstanding hereunder at any time exceed the Borrowing Base (whether established by an Availability Statement or otherwise) Borrowers shall pay to Agent immediately and without demand or notice of any kind required, the amount by which Borrowers’ indebtedness hereunder exceeds the Borrowing Base then applicable, together with all accrued interest on the amount so paid and any fees and costs incurred in connection therewith.

Section 2. 9 Fees . Borrowers shall pay to Agent, at Agent’s offices, the following:

(a) Agency Fee . A non-refundable monthly agency fee of equal to the greater of (i) $2,000 or (ii) two (2) basis points per annum of the Maximum Principal Amount then in effect shall be due and payable monthly solely for the account of Agent in arrears on the first day of each month commencing on the first such date after the funding of this Agreement and continuing until the Commitments are terminated and the Obligations are indefeasibly paid in full, in which event a monthly installment of the agency fee shall be paid on the date of such termination.

Section 2. 10 Regulatory Changes in Capital Requirements . If any Lender shall have determined that the adoption or the effectiveness after the date hereof of any law, rule, regulation or guideline regarding capital adequacy, or any change in any of the foregoing or in the interpretation or administration of any of the foregoing by any governmental authority, central lender or comparable agency charged with the interpretation or administration thereof, or compliance by such Lender (or any lending office of such Lender) or such Lender’s holding company with any industry wide request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central lender or comparable agency, has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of

this Agreement, to a level below that which such Lender or its holding company could have achieved on the portion of the Loans made by such Lender pursuant hereto but for such adoption, change or compliance (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time Borrowers shall pay to such Lender on demand such additional amount or amounts as will compensate such Lender or its holding company for any such reduction suffered together with interest on each such amount from the date demanded until payment in full thereof at the rate provided in Section 2.6 with respect to amounts not paid when due. Agent will notify Borrowers of any event occurring after the date of this Agreement that will entitle a Lender to compensation pursuant to this Section 2.10 as promptly as practicable after it obtains knowledge thereof and determines to request such compensation.

Section 2. 11 Sharing of Payments . If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of setoff or otherwise) on account of the Loans made by it in excess of its pro rata share of such payment as provided for in this Agreement, such Lender shall forthwith purchase from the other Lenders such participations in the Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment accruing to all Lenders in accordance with their respective ratable shares as provided for in this Agreement; provided , however , that if all or any portion of such excess is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and each such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender’s ratable share (according to the proportion of (a) the amount of such Lender’s required repayment to (b) the total amount so recovered from the purchasing Lender) or any interest or other amount paid or payable by the purchasing Lender in respect to the total amount so recovered. Borrowers agree that any Lender so purchasing a participation from another Lender pursuant to this Section 2.11 may, to the fullest extent permitted by law, exercise all of its rights of payment (including the right of setoff) with respect to such participation as fully as if such Lender were the direct creditor of Borrowers in the amount of such participation.

Section 2. 12 Pro Rata Treatment . Each payment or prepayment of principal of the Loan, and each payment of interest on the Loans, actually received by Agent shall be allocated pro rata among Lenders in accordance with the respective principal amounts of their outstanding Loans.

Section 2. 13 Existing Indebtedness . Borrowers acknowledge and confirm that as of the date hereof, Borrowers are indebted to WFPC, without defense, set-off or counter-claim under the Existing Loan Documents (“Existing Indebtedness”). This Agreement amends and restates the Existing Loan Agreement and the Existing Indebtedness shall be deemed to constitute an Advance by Lenders hereunder. The execution and delivery of this Agreement and the other Credit Documents, however, does not evidence or represent a refinancing, repayment, accord and/or satisfaction or novation of the Existing Indebtedness. All of Lenders’ obligations to Borrowers with respect to Advances to be made concurrently herewith or hereafter the date hereof are set forth in this Agreement. All liens and security interests previously granted to Agent, pursuant to the Existing Credit Documents are acknowledged and reconfirmed and remain in full force and effect and are not intended to be released, replaced or impaired.

Section 2. 14 Replacement of a Lender . If Borrowers become obligated to pay additional amounts to any Lender pursuant to Section 2.10 or as the result of any Defaulting Lender’s failure to

pay such amounts to Agent pursuant to Section 2.7, then Borrowers may within 30 days thereafter designate another bank that is acceptable to Agent in its reasonable discretion (such other bank being called a “Replacement Lender”) to purchase the Loans of such Lender and such Lender’s rights hereunder, without recourse to or warranty by, or expense to, such Lender, for a purchase price equal to the outstanding principal amount of the Loans payable to such Lender plus any accrued but unpaid interest on such Loans and all accrued but unpaid fees owed to such Lender and any other amounts payable to such Lender under this Agreement, and to assume all the obligations of such Lender hereunder, and, upon such purchase and assumption (pursuant to an Assignment and Acceptance), such Lender shall no longer be a party hereto or have any rights hereunder (other than rights with respect to indemnities and similar rights applicable to such Lender prior to the date of such purchase and assumption) and shall be relieved from all obligations to Borrower hereunder, and the Replacement Lender shall succeed to the rights and obligations of such Lender hereunder.

ARTICLE 3

SECURITY

Section 3. 1 Security Interest . To secure the payment and performance of the Obligations, each Borrower hereby grants to Agent, for the ratable benefit of Lenders, a continuing general Lien on and a continuing security interest in all of the Collateral, wherever located, whether now owned or hereafter acquired, existing or created, together with all replacements and substitutions therefor, and the cash and non-cash proceeds thereof. The Liens and security interests of Agent in the Collateral shall be first and prior perfected Liens and security interests and may be retained by Agent until all of the Obligations have been indefeasibly satisfied in full and the Commitments have expired or otherwise been terminated.

Section 3. 2 Financing Statements . Agent is hereby authorized by each Borrower to file any financing statements covering the Collateral or an amendment that adds collateral covered by the financing statement or an amendment that adds a debtor to a financing statement, in each case whether or not a Borrower’s signature appears thereon. Borrowers agree to comply with the requirements of all state and federal laws and requests of Agent in order for Agent to have and maintain a valid and perfected first security interest in the Collateral.

Section 3. 3 Documents to be Delivered to Agent . Concurrently with the execution and delivery of this Agreement and, thereafter, by the 20th day of each month for the prior month and at any other time as Agent may require, Borrowers shall deliver to Agent (for each Borrower and on consolidated basis) an Availability Statement (together with all supporting schedules), a Schedule of Receivables and Assignment, an aging of Receivables, books and records consisting of data tape information and such other documentation as Agent may require; however, the security interest of Agent in the Collateral shall attach immediately upon the creation or acquisition thereof by Borrowers, regardless of whether the same be then or thereafter delivered to Agent. All Receivables of Borrowers shall be stamped and assigned to Agent as follows to evidence the assignment to Agent:

The within instrument or agreement is pledged as collateral to Wells Fargo Bank, N.A., its successors and assigns.

Borrowers shall: (a) deliver to the custodian under the Custodian Agreement, as the bailee and

designee of Agent, or, upon the request of Agent, to Agent, the Collateral and all Documents, General Intangibles and Instruments relating to Collateral and, upon request of Agent, deliver to Agent or its designee any other property in which Borrowers have granted Agent a security interest hereunder, including, but not limited to, all of Borrowers’ Books and Records including all computers, computer related equipment, tapes and software; (b) execute and deliver to Agent, for the benefit of Lenders, such assignments, endorsements, allonges to promissory notes, mortgages, financing statements, amendments thereto and continuation statements thereof, in form satisfactory to Agent, and such additional agreements, documents or instruments as Agent may, from time to time, require to evidence, perfect and continue to perfect Agent’s liens and security interests granted hereunder and (c) execute an Electronic Collateral Control Agreement with an Electronic Collateral Custodian and, with respect to any Electronic Chattel Paper and other Collateral held or to be held by the Electronic Collateral Custodian, take any and all reasonable steps to ensure delivery and control of Electronic Chattel Paper, including any tangible Chattel Paper converted to Electronic Chattel Paper, to the Electronic Collateral Custodian to hold for the benefit of Agent, by using the Electronic Collateral Custodian’s electronic vaulting system or other electronic system reasonably acceptable to Agent, such that Agent’s security interest in and to such Electronic Chattel Paper and such other Collateral held by the Electronic Collateral Custodian shall, to the extent applicable, and to the reasonable satisfaction of Agent, continuously be perfected by “control,” in accordance with Section 9-105 of the UCC. For purposes of this Article 3, the parties hereto agree that, until Agent shall otherwise direct or designate, the custodian(s) under the Custodian Agreement or Agreements as from time to time in effect, shall be deemed to be the designee of Agent and Agent shall have the right, at any time and from time to time, to direct or redirect the delivery of all or any of the foregoing items to any other designee. Agent may in its sole discretion record or file any such document, instrument or agreement, including, without limitation, this Agreement, as it may from time to time deem desirable.

Section 3. 4 Collections . Notwithstanding the assignment (but not in any way to be deemed or construed to impair or affect the security interest granted hereunder) of the Receivables by Borrowers to Agent, until the occurrence of a Default or an Event of Default, Borrowers may service, manage, enforce and receive Collections on Receivables for the account of Agent. Borrowers shall have no power to make any unusual allowance or credit to any obligor without Agent’s prior written consent.

Upon notice by Agent at any time following the occurrence of an Event of Default or Default, Agent may require Borrowers to endorse and deposit all Collections within one Business Day of receipt thereof and in the original form received (except for the endorsement of Borrowers, if necessary, to enable the collection of instruments for the payment of money, which endorsements Borrowers hereby agree to make) in such account maintained with such depository as Agent may from time to time specify, such account to limit withdrawals by Borrowers therefrom only to the order of Agent, but to permit withdrawals by Agent therefrom without the co-signature of a Borrower. Agent may also require Borrowers to enter into an appropriate lock box agreement with Agent or another financial institution acceptable to Agent, in form and content acceptable to Agent, with respect to opening and maintaining a lock box arrangement for the Collections. Such lock box agreements shall be irrevocable so long as Borrowers are indebted to Agent and Lenders under this Agreement and this Agreement remains in effect.

Section 3. 5 Additional Rights of Agent; Power of Attorney .

(a) In addition to all the rights granted to Agent hereunder, Agent shall have the right, at any time following the occurrence and during the continuance of a Default or an Event of Default, to notify the obligors and account debtors of all Collateral to make payment thereon directly to Agent, and to take control of the cash and non-cash proceeds of such Collateral; provided, however, that once such notification is given to such obligors, it shall not be vitiated by a subsequent cure of such default without the prior written consent of Agent. When Collections received by Agent have been converted into cash form, Agent shall forthwith apply the same first in discharge of all expenses, fees, costs and charges including attorneys’ fees and costs of Collections; second to pay all interest accrued under the Notes and this Agreement; third to pay principal due under the Notes and this Agreement; and then to pay any other sums due to Agent and Lenders under the terms of this Agreement.

(b) Each Borrower irrevocably appoints Agent its true and lawful attorney, with power of substitution, to act in the name of such Borrower or in the name of Agent or otherwise, for the use and benefit of Agent, but at the cost and expense of Borrowers, without notice to Borrowers to do each of the following after the occurrence of an Event of Default or Default: to demand, collect, receipt for and give renewals, extensions, discharges and releases of any Receivables; to institute and to prosecute legal and equitable proceedings to realize upon any Receivables; to settle, compromise, or adjust claims; to take possession and control in any manner and in any place of any cash or non-cash items of payment or proceeds thereof; to endorse the name of such Borrower upon any notes, checks, drafts, money orders, or other evidences of payment of Receivables; to sign such Borrower’s name on any instruments or documents relating to any of the Collateral or on drafts against account debtors; to do all other acts and things necessary, in Agent’s sole judgment, to effect collection of the Receivables or protect its security interest in the Collateral; and generally to sell in whole or in part for cash, credit or property to others or to itself at any public or private sale, assign, make any agreement with respect to or otherwise deal with the Receivables as fully and completely as though Agent were the absolute owner thereof for all purposes, except to the extent limited by any applicable laws and subject to any requirement of notice to Borrowers or other Persons under applicable laws.

(c) Each Borrower hereby agrees to indemnify and hold Agent and Lenders harmless from and against any and all expenses, costs, liabilities or damages (including reasonable attorneys fees) sustained by Agent and each Lender by reason of any misrepresentation, breach of warranty or breach of covenant by Borrowers whether caused by Borrowers or any obligor, or whether caused by any other Person if Borrowers knew of or reasonably should have known that facts, circumstances or information on which Borrowers relied were false, incorrect or incomplete in any material respect, and also all court costs and all other expenses Agent and each Lender incurred in enforcing or attempting to enforce payment of the Loan or any Receivables, in supervising the records and proper management and disposition of the Collection of Receivables or in prosecuting or defending any of Agent’s and Lenders’ rights under this Agreement.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

Each Borrower represents and warrants and shall continue to represent and warrant to Agent and Lenders until the Obligations hereunder have been indefeasibly satisfied in full and the Commitments have expired or otherwise has been terminated as follows:

Section 4. 1 Representations and Warranties as to Receivables .

(a) As to the Receivables generally:

(i) Each Borrower or, where a Borrower was not the original lender, to the best of such Borrower’s knowledge, the original lender or seller had full power and authority to make the loans (or other extensions of credit) evidenced by the Receivables and all such Receivables and all Books and Records related thereto are genuine, based on enforceable contracts and are in all respects what they purport to be;

(ii) All Receivables have been duly authorized, executed, delivered by the parties whose names appear thereon and are valid and enforceable in accordance with their terms; constitute Chattel Paper; any chattels described in any Receivable are and will be accurately described and are and will be in the possession of the parties granting the security interest therein; and (A) any applicable filing, recording or lien notation law with respect to any collateral securing a Receivable will have been complied with to the extent such filing or recording is necessary under applicable law to create or perfect such Borrower’s security interest in such collateral consistent with its present policy; or (B) a Borrower shall have procured non-filing insurance from a reputable insurer in an amount not less than the value of the collateral securing such Receivables;

(iii) The form and content of all Receivables and the security related thereto and the transactions from which they arose comply in all material respects (and in any event in all respects necessary to maintain and ensure the validity and enforceability of the Receivables) with any and all applicable laws, rules and regulations, including without limitation, the Consumer Finance Laws;

(iv) The original amount and unpaid balance of each Receivable on Borrowers’ Books and Records and on any statement or schedule delivered to Agent and/or any Lender, including without limitation the Schedule of Receivables, is and will be the true and correct amount actually owing to a Borrower as of the date each Receivable is pledged to Agent, is not subject to any claim of reduction, counterclaim, set-off, recoupment or any other claim, allowance or adjustment; and no Borrower has any knowledge of any fact which would impair the validity or collectibility of any Receivables;

(v) All security agreements, title retention instruments, mortgages and other documents and instruments which are security for Receivables contain a correct and sufficient description of the real or personal property covered thereby, and, subject to the rights of Agent hereunder and the interests of Borrowers as holder of such security agreements, title retention instruments or mortgages or other documents or instruments, are or create first and prior perfected security interests and Liens;

(vi) Borrowers have made an adequate credit investigation of the obligor of each Receivable and have determined that his or her credit is satisfactory and meets the standards generally observed by prudent finance companies and is in conformity in all material respects with Borrowers’ policies and standards;

(vii) A Borrower has good and valid indefeasible title to the Receivables,

free and clear of all prior assignments, claims, liens, encumbrances and security interests, and has the right to pledge and grant Agent, for the ratable benefit of Lenders a first priority security interest in the same, in the manner provided in this Agreement; and

(viii) if the Authoritative Copy of any Receivable is evidenced by an electronic record, (A) such electronic record and the execution thereof is in compliance with the applicable provisions of the Uniform Electronic Transactions Act (as, and if, adopted by relevant jurisdiction) and the federal Electronic Signatures in Global and National Commerce Act, (B) if such Receivable is initially Electronic Chattel Paper, each of the parties to such Receivable agreed to conduct the transaction evidenced by such Receivable by electronic means, (C) if such Receivable is initially Electronic Chattel Paper, Borrowers or their electronic service provider utilizes security procedures designed to determine the Person to which such Receivable and the electronic signature thereof are attributable, (D) Borrowers or their electronic service provider provides a mechanism for the prevention or correction of errors in such electronic Records, (E) if not converted to a tangible medium, such Receivable was created or converted, stored and assigned in such a manner that: (1) a single Authoritative Copy of such Receivable exists that is unique, identifiable and, except as otherwise provided in Section 9-105(b)(4), (5) and (6) of the UCC, unalterable, (2) the Authoritative Copy of such Receivable identifies Agent as the secured party or assignee of such Receivable, (3) the Authoritative Copy of such Receivable has been communicated to the Electronic Collateral Custodian, to hold for the benefit of Agent, (4) copies or revisions that add or change an identified assignee of the Authoritative Copy of such Receivable can be made only with the consent of Agent, (5) each copy of the Authoritative Copy of such Receivable and any copy of a copy of such Receivable is readily identifiable as a copy that is not the Authoritative Copy of such Receivable, (6) any revision of the Authoritative Copy of such Receivable is readily identifiable as an authorized or unauthorized revision, (7) a copy of such Receivable is accessible to Agent, (F) if converted to a tangible medium, the Authoritative Copy of such Receivable has been delivered to Agent or Custodian, to hold for the benefit of Agent and (G) if converted from a tangible medium to an electronic medium, the merchant generating such Receivable has deleted, destroyed or obliterated all paper documents and digital copies of tangible Chattel Paper or has otherwise stamped all such related tangible Chattel Paper indicating it is not an Authoritative Copy (such as indicating it is a “copy”).

Section 4. 2 Organization and Good Standing . Each Borrower is duly organized and validly existing in good standing under the laws of the state identified on Exhibit H attached hereto and made part hereof and has the power and authority to engage in the business it conducts and is qualified and in good standing in those states wherein the nature of business or property owned by it requires such qualification, is not required to be qualified in any other state; or if not so qualified, no adverse effect would result therefrom. The organizational number assigned to each Borrower by the state of its organization is set forth on Exhibit H attached hereto and made part hereof.

Section 4. 3 Perfection of Security Interest . Upon filing of financing statements in all places as, in the opinion of counsel for Borrowers, are necessary to perfect the security interests granted in Article 3 of this Agreement, describing the Collateral and disclosing each Borrower as “Debtor” and Agent as “Secured Party,” and stamping the legend required under Section 3.3 of this Agreement on such Collateral, Agent will have a first perfected security interest in the Collateral superior in right of interest to purchasers from, or creditors or receivers or a trustee in bankruptcy of, Borrowers.

Section 4. 4 No Violations . The making and performance of the Credit Documents do not and will not violate any provisions of any law, rule, regulation, judgment, order, writ, decree, determination or award or breach any provisions of the charter, bylaws or other organizational documents of any Borrower, or constitute a default or result in the creation or imposition of any security interest in, or lien or encumbrance upon, any assets of any Borrower (immediately or with the passage of time or with the giving of notice and passage of time, or both) under any other contract, agreement, indenture or instrument to which a Borrower is a party or by which a Borrower or its property is bound and no failure of it to comply with any suit, law, rule, regulation, judgment, order, writ, decree, determination or award would have an adverse effect.

Section 4. 5 Power and Authority .

(a) Each Borrower has full power and authority under the law of the state of its organization and under its organizational documents to enter into, execute and deliver and perform the Credit Documents; to borrow monies hereunder, to incur the obligations herein provided for and to pledge and grant to Agent, for the ratable benefit of Lenders, a security interest in the Collateral; and

(b) All actions (corporate or otherwise) necessary or appropriate for each Borrower’s execution, delivery and performance of the Credit Documents have been taken.

Section 4. 6 Validity of Agreements . Each of the Credit Documents is, or when delivered to Agent will be, duly executed and constitute valid and legally binding obligations of each Borrower enforceable against such Borrower in accordance with their respective terms.

Section 4. 7 Litigation . There is no order, notice, claim, action, suit, litigation, proceeding or investigation pending or, threatened against or affecting any Borrower, whether or not fully covered by insurance, except as identified and described on Exhibit H attached hereto and made part hereof.

Section 4. 8 Compliance . Each Borrower is in compliance in all material respects with all applicable laws and regulations, federal, state and local (including all Consumer Finance Laws and those administered by the Local Authorities), material to the conduct of its business and operations; each Borrower possesses all the franchises, permits, licenses, certificates of compliance and approval and grants of authority necessary or required in the conduct of its business and, except as may be described on Exhibit H attached hereto and made part hereof, the same are valid, binding, enforceable and subsisting without any defaults thereunder or enforceable adverse limitations thereon, and are not subject to any proceedings or claims opposing the issuance, development or use thereof or contesting the validity thereof; and no approvals, waivers or consents, governmental (federal, state or local) or non-governmental, under the terms of contracts or otherwise, are required by reason of or in connection with such Borrower’s execution and performance of the Credit Documents.

Section 4. 9 Accuracy of Information; Full Disclosure .

(a) All financial statements, including any related schedules and notes appended thereto, delivered and to be delivered to Agent and/or any Lender pursuant to this Agreement have been or will be prepared in accordance with GAAP and do and will fairly present the financial condition of each Borrower and its consolidated Subsidiaries, if any, on the dates thereof and results

of operations for the periods covered thereby and discloses all liabilities (including contingent liabilities) of any kind of such Borrower.

(b) Since the date of the most recent financial statements furnished to Agent, there has not been any adverse change in the financial condition, business or operations of any Borrower.

(c) All financial statements and other statements, documents and information furnished by Borrowers, or any of them, to Agent and/or any Lender in connection with this Agreement and the Notes and the transactions contemplated hereunder do not and will not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading. Each Borrower has disclosed to Agent in writing any and all facts which materially and adversely affect the business, properties, operations or condition, financial or otherwise, of such Borrower, or such Borrower’s ability to perform its obligations under this Agreement and the Notes.

Section 4. 10 Taxes . Each Borrower has filed and will file all tax returns which are required to be filed and has paid or will pay when due all taxes, license and other fees with respect to the Collateral and the business of such Borrower except taxes contested in good faith for which adequate reserves have been established by such Borrower on its Books and Records.

Section 4. 11 Indebtedness . No Borrower has presently outstanding indebtedness or obligations including contingent obligations and obligations under leases of property from others, except the indebtedness and obligations described in Exhibit H attached hereto and made part hereof and in Borrowers’ financial statements which have been furnished to Agent from time to time pursuant to Section 6.2 of this Agreement.

Section 4. 12 Investments . No Borrower has direct or indirect Subsidiaries or Affiliates, or investments in or loans to any other individuals or business entities (other than Consumer Purpose Loans), except as described in Exhibit H attached hereto and made part hereof.

Section 4. 13 ERISA . Each Borrower and any Subsidiary, and each member of the controlled group of corporations (as such term “controlled group of corporations” is defined in Section 1563 of the Internal Revenue Code of 1986, as amended) of which such Borrower is a member, is in compliance in all material respects with all applicable provisions of ERISA and the regulations promulgated thereunder. No reportable event, as such term (hereinafter called a “Reportable Event’) is defined in Title IV of ERISA, has occurred with respect to, nor has there been terminated, any Plan maintained for employees of any Borrower or any Subsidiary or any member of the controlled group of corporations of which a Borrower is a member.

Section 4. 14 Hazardous Wastes, Substances and Petroleum Products .

(a) Each Borrower (i) has received all permits and filed all notifications necessary to carry on its respective business; and (ii) is in compliance in all respects with all Environmental Control Statutes.

(b) No Borrower has given any written or oral notice to the Environmental Protection Agency (“EPA”) or any state or local agency with regard to any actual or imminently threatened removal, spill, release or discharge of hazardous or toxic wastes, substances or petroleum

products or properties owned or leased by such Borrower or in connection with the conduct of its business and operations.

(c) No Borrower has received notice that it is potentially responsible for costs of clean-up of any actual or imminently threatened spill, release or discharge of hazardous or toxic wastes or substances or petroleum products pursuant to any Environmental Control Statute.

Section 4. 15 Solvency . Each Borrower is, and after receipt and application of the first Advance will be, solvent such that (a) the fair value of its assets (including without limitation the fair salable value of such Borrower’s Intangible Assets) is greater than the total amount of its liabilities, including without limitation, contingent liabilities, (b) the present fair salable value of its assets (including without limitation the fair salable value of its Intangible Assets) is not less than the amount that will be required to pay the probable liability on its debts as they become absolute and matured, and (c) it is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business. No Borrower intends to, or believes that it will, incur debts or liabilities beyond its ability to pay as such debts and liabilities mature, and is not engaged in a business or transaction, or about to engage in a business or transaction, for which its property would constitute unreasonably small capital after giving due consideration to the prevailing practice and industry in which it is engaged. For purposes of this Section 4.15, in computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that reasonably can be expected to become an actual matured liability.

Section 4. 16 Business Location . Each Borrower’s address set forth on Exhibit I attached hereto and made part hereof is the location of such Borrower’s principal place of business and such address, together with the addresses set forth on Exhibit I attached hereto and made part hereof, is the only location where such Borrower keeps its records concerning the Collateral. The location of all other places of business of each Borrower and the names in which each Borrower conducts business at each such location are set forth in Exhibit I attached hereto and made part hereof.

Section 4. 17 Capital Stock . All of the issued and outstanding capital stock or other ownership interest of each Borrower is owned as described on Exhibit H attached hereto and made part hereof, and all such ownership interests are fully paid and non-assessable.

Section 4. 18 No Extension of Credit for Securities . No Borrower is, nor will it be, engaged principally or as one of its important activities in the business of extending credit for the purpose of purchasing or carrying or trading in any margin stocks or margin securities (within the meaning of Regulations G, U and X of the Board of Governors of the Federal Reserve System) or other securities, and no part of the proceeds of the Loan hereunder has been or will be applied for the purpose of purchasing or carrying or trading in any such stock or securities or of refinancing any credit previously extended, or of extending credit to others, for the purpose of purchasing or carrying any such margin stock, margin securities or other securities in contravention of such Regulations.

ARTICLE 5

CONDITIONS TO LOAN

Section 5. 1 Documents to be Delivered to Agent Prior to Effectiveness . Prior to the effectiveness of this Agreement, Borrowers shall deliver or cause to be delivered to Agent (all documents to be in form and substance satisfactory to Agent in its sole and absolute discretion):

(a) Credit Documents . This Agreement, the Notes and all other Credit Documents duly and properly executed by the parties thereto;

(b) Organizational Documents and Incumbency Certificate . A certificate by each Borrower’s corporate secretary (or other appropriate officer) (i) that there has been no amendments, modifications, supplements or changes to such Borrower’s articles or certificate of incorporation or bylaws since August 1, 2005 and such articles or certificate of incorporation or bylaws remain in full force and effect on the date hereof, and (ii) as to the incumbency and signatures of officers of such Borrower signing the Agreement, the Notes and other Credit Documents;

(c) Authorization Documents . A certified copy of resolutions of each Borrower’s board of directors, members or partners, as applicable, authorizing the execution, delivery and performance of the Notes, this Agreement and all other Credit Documents, the pledge of the Collateral to Agent as security for the Loan made hereunder and the borrowing evidenced by the Note and designating the appropriate officers to execute and deliver the Credit Documents;

(d) Opinion of Counsel . Agent shall have received a written opinion of Borrowers’ counsel addressed to Agent in form and substance satisfactory to Agent in its sole discretion;

(e) Officer’s Certificate . A certificate, dated the date of this Agreement, signed by the President or other authorized officer of each Borrower, to the effect that (i) all representations and warranties set forth in this Agreement are true and correct as of the date hereof in all material respects and (ii) no Default or Event of Default hereunder has occurred, each Borrower’s corporate seal being affixed to such certificate and each Borrower’s corporate secretary attesting thereto;

(f) Financing Statements and Collateral Documents . The financing statements, amendments thereto, and other documents required by Sections 3.2 and 3.3; and the Custodian Agreement(s) referenced in Section 3.3.

(g) Subordination Documents . The Amended and Restated Subordination Agreement(s) duly executed by each holder of Subordinated Debt, together with copies of the documents, instruments and writings evidencing such Subordinated Debt;

(h) Due Diligence . Completion of Agent’s due diligence;

(i) Other Documents . Such additional documents as Agent reasonably may request.

Section 5. 2 Conditions to all Advances . The obligation of Lenders to make each

subsequent Advance hereunder pursuant to Section 2.1 is conditioned upon (a) Borrowers’ satisfaction of each of the conditions specified in Sections 2.1, 3.2, 3.3 and 5.1, (b) the continuing accuracy of the representations and warranties made by Borrowers under this Agreement, (c) the absence, after giving effect to such Advance and the receipt of the proceeds thereof and the retirement of any indebtedness then being retired out of the proceeds of such Advance, of any Default or Event of Default; and (d) Borrowers’ continued compliance with the requirements of Section 6.3 (with respect to audit of Collateral).

ARTICLE 6

AFFIRMATIVE COVENANTS

In addition to the covenants contained in Article 3 and 4 of this Agreement relating to the Collateral, until all Obligations have been indefeasibly satisfied in full and the Commitment has expired or otherwise has been terminated, each Borrower covenants and agrees as follows:

Section 6. 1 Place of Business and Books and Records . Each Borrower will promptly advise Agent in writing of (a) the establishment of any new places of business by such Borrower and of the discontinuance of any existing places of business of such Borrower; (b) the creation of any new Subsidiaries or Affiliates and (c) the acquisition and or use of any trade name or trade style.

Section 6. 2 Reporting Requirements . Borrowers will deliver to Agent:

(a) within 20 days after the end of each month, company prepared consolidated and consolidating financial statements of Borrowers’ business for such previous month, consisting of a balance sheet, income statement, and consolidating schedules as of the end of such month, all in reasonable detail, prepared in accordance with GAAP consistently applied, subject to year-end adjustments;

(b) within 120 days after the close of each fiscal year, commencing with the fiscal year ending December 31, 2008, consolidated and consolidating financial statements of Borrowers and their consolidated Subsidiaries for the fiscal year then ended consisting of a balance sheet, income statement and statement of cash flow of Borrowers and their consolidated Subsidiaries as of the end of such fiscal year, all in reasonable detail, including all supporting schedules and footnotes, prepared in accordance with GAAP consistently applied, and shall be audited and certified without qualification by an independent certified public accountant selected by Borrowers and acceptable to Agent and accompanied by the unqualified opinion of such accountant; and cause Agent to be furnished at the time of completion thereof, a copy of any management letter for Borrowers and their consolidated Subsidiaries prepared by such certified public accounting firm.

(d) within 20 days after the end of each month, for the month then ending, reports in form and substance satisfactory to Agent, as required pursuant to Section 3.3, setting forth an aging of Receivables, Schedule of Receivables and Assignment, an Availability Statement, covenant compliance certificate, books and records consisting of data tape information and also such other documentation and information promptly after request therefor by Agent

(e) copies of C&F Financial Corporation’s income tax returns, including any schedules attached thereto, filed with the Internal Revenue Service promptly after the filing thereof with the Internal Revenue Service, which shall include Borrowers’ income tax information on a consolidated basis; and

(f) Within 120 days after the date of each fiscal year, an annual certificate signed by an executive officer of Borrower in the form of Exhibit J attached hereto.

Section 6. 3 Books and Records . Borrowers will keep accurate and complete Books and Records concerning the Collateral and all transactions with respect thereto consistent with sound business practices (including, without limitation, accurately account for insurance commissions) and will comply with Agent’s reasonable requirements, from time to time in effect, including those concerning the submission of reports on all items of Collateral including those which are deemed to be delinquent. The form of delinquency reports, the frequency with which such reports shall be submitted to Agent (which in any case shall be no less frequently than monthly) and the standards for determining which Collateral transactions are deemed delinquent for this purpose, shall at all times be satisfactory to Agent. Agent shall have the right at any time and from time to time during regular business hours, at Borrowers’ expense, to inspect, audit, and copy the Books and Records of Borrowers and inspect and audit any Collateral. Notwithstanding the foregoing, prior to the occurrence of an Event of Default or Default, the administrative fee paid by Borrowers pursuant to Section 2.9(a) shall cover such costs and expenses.

Section 6. 4 Financial Covenants . At all times Borrowers shall maintain the following financial covenants (based on consolidated financial statements of Borrowers and their consolidated Subsidiaries unless otherwise indicated):

(a) EBITDA Ratio . As of the end of each calendar month, an EBITDA Ratio of not less than 1.25 to 1.

(b) Collateral Performance Indicator . At all times the Collateral Performance Indicator shall be less than 17%.

(c) Allowance for Loan Losses . At all times the aggregate value of Borrowers’ allowance for loan losses, as calculated in accordance with GAAP, in an amount not less than the greater of (a) 5.0% of the total net outstanding Receivables or (b) net outstanding Receivables multiplied by the rolling twelve month ratio of the net charge-offs to average net Receivables outstanding during such twelve month period or (c) an amount pursuant to the recommendation of the independent certified public accountant auditing Borrowers’ financial statements.

(d) Senior Debt to Capital Base Ratio . At all times, a ratio of Senior Debt to Capital Base of not more than 2.25 to 1.0.

(e) Charge-off Policy . Receivables must be charged off (on a monthly basis) with respect to which no payment due and owing thereunder hereunder has been made for a period that is equal to or greater than 180 days, as determined on a contractual basis.

(f) Senior EBITDA Ratio . As of the end of each calendar month, a Senior EBITDA Ratio of not less than 3.00 to 1.

Borrowers’ failure to comply with Section 6.4(c) or Section 6.4(e) shall not, in itself, constitute an Event of Default so long as such shortfalls or losses are deducted, as contemplated by the terms of this Agreement, in the determination of the other financial covenants contained herein.

Section 6. 5 Compliance With Applicable Law .

(a) All Receivables shall comply in all material respects with all applicable federal, state and local laws, rules, regulations, proclamations, statutes, orders and interpretations at the time when Agent obtains any interest therein pursuant to this Agreement.

(b) Each Borrower shall comply in all respects with all local, state and federal laws and regulations applicable to its business including without limitation the Consumer Finance Laws, Environmental Control Statutes, and all laws and regulations of the Local Authorities, and the provisions and requirements of all franchises, permits, certificates of compliance and approval issued by regulatory authorities and other like grants of authority held by Borrowers; and notify Agent immediately (and in detail) of any actual or alleged failure to comply with or perform, breach, violation or default under any such laws or regulations or under the terms of any of such franchises or licenses, grants of authority, or of the occurrence or existence of any facts or circumstances which with the passage of time, the giving of notice or otherwise could create such a breach, violation or default or could occasion the termination of any of such franchises or grants of authority.

(c) With respect to the Environmental Control Statutes, Borrowers shall notify Agent when, in connection with the conduct of Borrowers’ business or operations, any Person (including, without limitation, EPA or any state or local agency) provides oral or written notification to any Borrower or any Subsidiary with regard to an actual or imminently threatened removal, spill, release or discharge of hazardous or toxic wastes, substances or petroleum products; and notify Agent immediately (and in detail) upon the receipt by any Borrower of an assertion of liability under the Environmental Control Statutes, of any actual or alleged failure to comply with or perform, breach, violation or default under any such statutes or regulations or of the occurrence or existence of any facts, events or circumstances which with the passage of time, the giving of notice, or both, could create such a breach, violation or default.

Section 6. 6 Notice of Default . Borrowers will promptly notify Agent of the occurrence of any Default or Event of Default hereunder or under the Notes or of any fact, condition or event which, with the giving of notice, passage of time, or both, would become a Default or an Event of Default.

Section 6. 7 Corporate Existence, Properties . Borrowers will (a) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to it; (b) maintain, preserve and protect all franchises, licenses and trade names and preserve all the remainder of its property used or useful in the conduct of its business; and (c) maintain in effect insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as shall be consistent with prudent business practices in the industry and furnish to Agent from time to time, upon their request therefor, evidence of same.

Section 6. 8 Payment of Indebtedness; Taxes . Borrowers will (a) pay all of their

indebtedness and obligations promptly and in accordance with normal terms; and (b) pay and discharge or cause to be paid and discharged promptly all taxes, assessments, and governmental charges or levies imposed upon it or upon its income and profits, or upon any of its property, real, personal or mixed, or upon any part thereof, before the same shall become in default, as well as all lawful claims for labor, materials and supplies or otherwise which, if unpaid, might become a lien or charge upon such properties or any part thereof; provided, however, that Borrowers shall not be required to pay and discharge or to cause to be paid and discharged any such indebtedness, tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings and Borrowers shall have set aside on their books adequate reserves (as may be required in accordance with GAAP) with respect to any such indebtedness, tax, assessment, charge, levy or claim, so contested.

Section 6. 9 Notice Regarding Any Plan . Borrowers shall furnish to Agent:

(a) as soon as possible, and in any event within 10 days after any senior officer of Borrowers knows or has reason to know that any Reportable Event has occurred with respect to any Plan maintained in whole or in part for the employees of a Borrower or any of their Subsidiaries, a statement of the President, Treasurer or other authorized officer of Borrowers setting forth details as to such Reportable Event and the action which is proposed to be taken with respect thereto, together with a copy of the notice of such Reportable Event given to the Pension Benefit Guaranty Corporation; and

(b) promptly after receipt thereof, a copy of any notice which a Borrower may receive from the Pension Benefit Guaranty Corporation relating to the intention of a Borrower to terminate any Plan maintained in whole or in part for the benefit of employees of any Borrower or any of their Subsidiaries or to appoint a trustee to administer any such Plan.

Section 6. 10 Other Information . From time to time upon request of Agent, Borrowers will furnish to Agent such additional information and reports regarding the Collateral and the operations, businesses, affairs, prospects and financial condition of Borrowers and their Subsidiaries as Agent may request.

Section 6. 11 Litigation , Enforcement Actions and Requests for Information . Borrowers will promptly notify Agent (a) any litigation or action instituted or, to Borrowers’ knowledge, threatened against any Borrower or any of their Subsidiaries and of the entry of any judgment or lien against any property of Borrower in an amount of $25,000 or more as to any separate action, litigation, judgment or lien instituted, threatened or entered or in an aggregate amount of $75,000 or more as to all actions, litigation, judgments, or liens instituted, threatened or entered; (b) any enforcement action or investigation instituted or, to Borrowers’ knowledge, threatened in writing, against any Borrower or any of their Subsidiaries by any Governmental Authority, including without limitation any proceeding or action to be commenced by the filing of a stipulation and consent; (c) receipt by any Borrower or any of their Subsidiaries of an “Early Warning Notice,” “Notice and Opportunity to Respond and Advise” or “Civil Investigative Demand” from the Consumer Financial Protection Bureau or similar notice or request from any other Governmental Authority; or (d) the occurrence of a Regulatory Event.

Section 6. 12 Business Location, Legal Name and State of Organization . Borrowers shall

notify Agent: (a) at least 30 days prior to: (i) any proposed change in a Borrower’s principal place of business, a Borrower’s legal name or a Borrower’s state of organization; (ii) any additional places of business of any Borrower or any Subsidiaries; (iii) the change in the names in which a Borrower or any Subsidiary conducts business at each such location; and (iv) the change of a Borrower’s jurisdiction of organization; and (b) at least one Business Day prior to any proposed change in or additional custodians under any Custodian Agreement (which change in or additional custodian shall be acceptable to Agent in its sole discretion). Upon request of Agent, Borrowers will execute and deliver such additional Custodian Agreement(s) or amendments thereto and such other additional documents, instruments and writings, and take such other action as Agent shall request to obtain, maintain or continue its perfected and first priority Lien on and security interest in the Collateral.

Section 6. 13 Operations . Borrowers shall maintain satisfactory credit underwriting and operating standards, including, with respect to each obligor of each Receivable, the completion of an adequate investigation of such obligor and a determination that the credit history and anticipated performance of such obligor is and will be satisfactory and meets the standards generally observed by prudent finance companies.

Section 6. 14 Further Assurances . Borrowers shall from time to time execute and deliver to Agent such other documents and shall take such other action as may be requested by Agent in order to implement or effectuate the provisions of, or more fully perfect the rights granted or intended to be granted by Borrowers to Agent pursuant to the terms of this Agreement, the Notes or any other Credit Documents.

Section 6. 15 Chattel Paper/Jurisdictions .

(a) Upon Agent’s written request from time to time, but in no event more frequently than once per calendar year while no Event of Default has occurred and is continuing, Borrowers shall engage outside legal counsel reasonably acceptable to Agent (at Borrowers’ sole cost and expense) to undertake a review of Receivable documentation of Borrowers and their Subsidiaries to confirm that such documentation complies with applicable law in all material respects. Borrowers shall provide Agent with copies of such review within sixty (60) days after each such request with the results of such documentation review to be reasonably acceptable to Agent in all material respects.

(b) Borrowers shall promptly (i) notify Agent of either (A) Borrowers or any of their Subsidiaries conducting business in any new jurisdiction, and (B) Borrowers or any of their Subsidiaries making any material modifications to its respective Receivable documentation and (ii) upon the request of Agent, provide Agent a list of jurisdictions in which Borrowers and their Subsidiaries conduct business and licenses held in each such jurisdiction.

ARTICLE 7

NEGATIVE COVENANTS

Each Borrower covenants and agrees with Agent and Lenders that until all Obligations have been indefeasibly satisfied in full and the Commitments have expired or otherwise been terminated, no

Borrower will do any of the following without the prior written consent of Agent:

Section 7. 1 Payments to and Transactions with Affiliates . (a) Make any loan, advance, extension of credit or payment to any Affiliate, officer, employee, member, manager, shareholder or director of any Borrower or any Affiliate or (b) enter into any other transaction, including, without limitation, the purchase, sale, lease or exchange of property, or the rendering or any service, to or with any Affiliate or any officer, or employee of any Borrower or any Affiliate except for other transactions with or services rendered to any Affiliate of a Borrower in the ordinary course of business and pursuant to the reasonable requirements of the business of such Affiliate and upon terms found by the board of directors of a Borrower to be fair and reasonable and no less favorable to a Borrower than would be able to obtain in a comparable arms’ length transaction with a Person not affiliated with or employed by a Borrower; provided, however, that Borrowers may in any event pay reasonable compensation to any such employee or officer in the ordinary course of Borrowers’ business consistent and commensurate with industry custom and practice for the services provided by such Person.

Section 7. 2 Restricted Payments . Make any Restricted Payment, except that a Borrower may make (a) dividend and distribution payments and (b) payments of interest on Subordinated Debt not otherwise prohibited under the subordination provisions applicable to such Subordinated Debt, provided immediately prior to and after giving effect to any distribution or payment no Default or Event of Default shall exist.

Section 7. 3 Indebtedness . Borrow any monies or create any Debt except: (a) borrowings from Agent and Lenders hereunder; (b) (i) Subordinated Debt incurred prior to December 19, 2017 and (ii) Subordinated Debt incurred on or after December 19, 2017 with the prior written consent of Agent (in its sole and absolute discretion); (c) trade indebtedness in the normal and ordinary course of business for value received; (d) indebtedness and obligations incurred to purchase or lease fixed or capital assets; (e) unsecured indebtedness and obligations owing to Citizens and Farmers Bank and (f) Bank Products.

Section 7. 4 Guaranties . Guarantee or assume or agree to become liable in any way, either directly or indirectly, for any additional indebtedness or liability of others except to endorse checks or drafts in the ordinary course of business.

Section 7. 5 Nature of Business . Engage in any business other than the business in which such Borrower currently is engaged or make any material change in the nature of the financings which such Borrower extends, including without limiting the generality of the foregoing, matters relating to size, type, term, nature and dollar amount.

Section 7. 6 Negative Pledge . Assign, discount, pledge, sell, grant a Lien in or otherwise dispose of or encumber any Receivables or the Collateral except (i) as contemplated by this Agreement and (ii) the Permitted Lien. Notwithstanding the foregoing, Borrowers shall be permitted to sell Receivables in an amount not to exceed $5,000,000.00 per fiscal quarter and Agent shall release its interest in such Receivables, provided, that (i) Borrowers provide Agent and Lenders with at least ten days prior written notice of any sale of Receivables, (ii) no Default or Event of Default has occurred and is continuing and (iii) the proceeds of such sale are paid directly to Agent by wire transfer to be applied against the Obligations, as determined by Agent, in its sole and absolute discretion.

Section 7. 7 Investments and Acquisitions . (a) Make any investments in any other firm, entity or corporation; (b) enter into any new business activities or ventures not related to such Borrower’s business existing as of the date of this Agreement without providing at least thirty (30) days prior written notice to Agent and Lenders; (c) create or form any Subsidiary; or (d) purchase any Property for an amount greater than $25,000,000 in one or a series of related transactions; provided, however, (x) Borrowers shall provide written notice to Agent at least 10 days prior to each such purchase, (y) for purchases of greater than $1,000,000, all such Receivables shall be excluded from the determination of the Borrowing Base and deemed ineligible Receivables except with the written consent of Agent and (z) at least seventy five percent (75%) Borrowers’ Principal Receivables constitute Receivables secured by consumer automobiles.

Section 7. 8 Compliance with Formula . Permit the aggregate amount of all Advances outstanding at any time to exceed the Borrowing Base.

Section 7. 9 Mergers , Sales, Divestitures . Acquire all or substantially all of the assets or shares of stock of or other equity interest in any entity, be a party to any consolidation or merger or sell, transfer or otherwise dispose of any Collateral or all or any substantial part of its Property.

Section 7. 10 Use of Proceeds . Use the proceeds of any loan or advance made by Agent or Lenders hereunder for purposes other than in connection with Borrowers’ consumer lending activities.

Section 7. 11 Ownership and Management . Allow any Borrower to be owned and controlled directly or indirectly by any Person other than the existing shareholders and senior management that own and control such Borrower as of the date of this Agreement.

Section 7. 12 Amendment to Subordinated Debt . Amend or permit the amendment of the documents and instruments evidencing Subordinated Debt or make any prepayment on account of such Subordinated Debt which is not otherwise allowed to be made under the subordination provisions applicable to such Subordinated Debt.

Section 7. 13 Electronic Chattel Paper Documents . Amend or permit the amendment or termination of an Electronic Collateral Control Agreement or the Order Form without the prior written consent of Agent.

Section 7. 14 Deposit Accounts . Open or maintain any deposit accounts other than those listed on Schedule 7.14 attached hereto.

ARTICLE 8

EVENTS OF DEFAULT

Each of the following events shall constitute an Event of Default under this Agreement:

Section 8. 1 Failure to Make Payments . The failure of Borrowers to make any payment of principal or interest under the Notes or this Agreement or any other payment hereunder or in respect of any other Obligation.

Section 8. 2 Information , Representations and Warranties . If any financial statement, written information furnished or representation or warranty, certificates, document or instrument made or given by any Borrower herein or furnished in connection herewith shall be false, misleading or incorrect.

Section 8. 3 Financial Covenants . The failure of any Borrower to observe, perform or comply with any of the covenants set forth in this Agreement.

Section 8. 4 Collateral . If at any time after the grant to Agent for the benefit of Lenders of a security interest in or Lien upon any Collateral, Agent’s interest therein shall for any reason cease to be a valid and subsisting first priority Lien in favor of Agent and/or a valid and perfected first priority security interest in and to the Collateral purported to be covered thereby having the priority set forth therein.

Section 8. 5 Defaults Under Other Agreements . Any default by any Borrower under any other agreement to which such Borrower is a party and with respect to which the amount claimed exceeds $30,000, singly or in the aggregate.

Section 8. 6 Certain Events . The occurrence of any of the following with respect to any Borrower:

(a) Voluntary Proceedings . It shall (i) apply for or consent to the appointment of a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (ii) be generally not paying its debts as such debts become due as defined in the United States Bankruptcy Code, (iii) make a general assignment for the benefit of its creditors, (iv) commence a voluntary case under the Bankruptcy Code, (v) fail to controvert in a timely or appropriate manner, or acquiesce in writing to, any petition filed against it in any involuntary case under the Bankruptcy Code, or (vi) take any corporate action for the purpose of effecting any of the foregoing.

(b) Involuntary Proceeding . A proceeding or case shall be commenced against it without its application or consent in any court of competent jurisdiction, seeking (i) the liquidation, reorganization, dissolution, winding up, or composition or readjustment of debts, of it, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like for it or of all or any substantial part of its assets, or (iii) similar relief in respect of it under any law providing for the relief of debtors, and such proceeding or case shall continue undismissed or unstayed and in effect, for a period of 30 days, or an order for relief against it shall be entered in an involuntary case under the Bankruptcy Code.

(c) Reportable and Other Events . (i) The occurrence of any Reportable Event which Agent determines in good faith constitutes grounds for the termination of any Plan by the Pension Benefit Guaranty Corporation (“PBGC”) or for the appointment by the United States District Court of a trustee to administer any Plan; (ii) the institution by the PBGC of proceedings to terminate any Plan; or (iii) the failure of Borrower, or any Subsidiary to meet the minimum funding standards established in Section 412 of the Internal Revenue Code of 1986, as amended.

Section 8. 7 Possession of Collateral . A judgment creditor of any Borrower shall take possession or file proceedings to attempt to take possession of any of the Collateral by any means

including without limitation, by levy, distraint, replevin, self-help, seizure or attachment.

Section 8. 8 Credit Documents . An event of default (however defined) shall occur under any Credit Document or under any other security agreement, guaranty, mortgage, deed of trust, assignment or other instrument or agreement securing or supporting any obligation of any Borrower under this Agreement or under the Note.

Section 8. 9 Material Adverse Change . A material adverse change in the business, operations, property (including the Collateral), prospects or financial condition of any Borrower shall occur.

Section 8. 10 Level Two Regulatory Event . The occurrence of a Level Two Regulatory Event which remains unvacated, undischarged, unbonded or unstayed by appeal or otherwise for a period of thirty (30) days from the date of its entry.

ARTICLE 9

REMEDIES OF AGENT AND WAIVER

Section 9. 1 Agent’s Remedies . Upon the occurrence of any Event of Default or Default, Agent may, or at the direction of Required Lenders shall, cease making Advances hereunder. Upon the occurrence of an Event of Default Agent may, or at the direction of Required Lenders shall (i) immediately terminate this Agreement or (ii) declare the Obligations immediately due and payable without presentment, notice of dishonor, protest or further notice of any kind, all of which Borrowers hereby expressly waive. Upon such occurrence and/or declaration, Agent shall have, in addition to the rights and remedies given to it by the Notes and this Agreement and the other Credit Documents, all the rights and remedies of a secured party as provided in the UCC (regardless of whether such Code has been adopted in the jurisdiction where such rights and remedies are asserted) and without limiting the generality of the foregoing, and without demand of performance and without other notice (except as specifically required by the Notes or this Agreement or the documents executed in connection herewith) or demand whatsoever to Borrowers all of which are hereby expressly waived, Agent may, in addition to all the rights conferred upon it by law, exercise one or more of the following rights successively or concurrently: (a) to take possession of the Collateral, or any evidence thereof, proceeding without judicial process or by judicial process (without a prior hearing or notice thereof, which Borrowers hereby expressly waive), (b) to lawfully dispose of the whole or any part of the Receivables or any Collateral, or any other Property, instrument or document pledged as security for any Obligation at public or private sale, without advertisement or demand upon Borrowers, or upon any obligor of Receivables, the Collateral, or any other security, the same being hereby waived, except to the extent otherwise required by law, with the right on the part of Agent or their respective nominees to become the purchaser thereof as provided by law absolutely freed and discharged from any equity of redemption, and all trusts and other claims whatsoever; (c) after deduction of all reasonable legal and other costs and expenses permitted by law, including attorneys’ fees, to apply the Collateral or all or any portion of proceeds thereof on account of, or to hold as a reserve against, all Obligations; and (d) to exercise any other rights and remedies available to it by law or agreement. Any remainder of the proceeds after indefeasible satisfaction in full of the Obligations shall be distributed as required by applicable law. Notice of any sale or disposition of Collateral shall be given to Borrowers at least 10 Business Days before any intended public sale or the time after which any

intended private sale or other disposition of the Collateral is to be made, which Borrowers agree shall be reasonable notice of such sale or other disposition. Notwithstanding the foregoing, upon the occurrence of an Event of Default described in Section 8.6(a) or (b) hereof, the Commitments shall immediately terminate and the Loan made pursuant to this Agreement and all other Obligations, together with all accrued interest, shall be immediately due and payable in full without presentment, demand, or protest or notice of any kind, all of which Borrowers hereby expressly waive.

Section 9. 2 Waiver and Release by Borrowers . To the extent permitted by applicable law, each Borrower: (a) waives (i) presentment and protest of the Notes and this Agreement or any Receivables held by Agent on which any Borrower is any way liable and (ii) notice and opportunity to be heard, after acceleration in the manner provided in Article 9 of this Agreement, before exercise by Agent of the remedies of self-help or set-off permitted by law or by any agreement with any Borrower, and except where required hereby or by law, notice of any other action taken by Agent; and (b) releases Agent, Lenders and their respective officers, attorneys, agents and employees from all claims for loss or damage caused by any act or omission on the part of Agent, Lenders or their respective officers, attorneys, agents and employees, except willful misconduct or gross negligence.

Section 9. 3 No Waiver . Neither the failure nor any delay on the part of Agent or any Lender to exercise any right, power or privilege under the Notes or this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other further exercise of any right, power or privilege.

ARTICLE 10

MISCELLANEOUS

Section 10. 1 Indemnification and Release Provisions . Each Borrower hereby agrees to defend Agent, Lenders and their directors, officers, agents, employees and attorneys from, and hold each of them harmless against, any and all losses, liabilities (including without limitation settlement costs and amounts, transfer taxes, documentary taxes, or assessments or charges made by any governmental authority), claims, damages, interests, judgments, costs, or expenses, including without limitation fees and disbursements of attorneys, incurred by any of them arising out of or in connection with or by reason of (a) this Agreement, the making of the Loan or any Collateral, or any other Credit Document, including without limitation, any and all losses, liabilities, claims, damages, interests, judgments, costs or expenses relating to or arising under any Consumer Finance Laws or Environmental Control Statute or the application of any such statute to Borrower’s properties or assets and (b) the creation, generation, communication or storage of records by electronic means, the utilization by Borrowers of the RouteOne LLC services and its “Paper-In”, “Paper Out” and “Transfer of Control” processes for electronic Records, the negligence, fraudulent or willful misconduct of the Electronic Collateral Custodian in connection with any Collateral which is currently, or was formerly, evidenced by an electronic record. Each Borrower hereby releases Agent, Lenders and their respective directors, officers, agents, employees and attorneys from any and all claims for loss, damages, costs or expenses caused or alleged to be caused by any act or omission on the part of any of them, other than such loss, damage cost or expense which has been determined by a court of competent jurisdiction to have been caused by the gross negligence or willful misconduct of Agent and Lenders. All obligations provided for in this Section 10.1 shall survive any termination of this Agreement or the Commitments and the repayment of the Loan.

Section 10. 2 Amendments .

(a) Neither the amendment or waiver of any provision of this Agreement or any other Credit Document, nor the consent to any departure by Borrowers therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders , or if Lenders shall not be parties thereto, by the parties thereto and consented to by the Required Lenders, and each such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that no amendment, waiver or consent shall unless in writing and signed by all Lenders, do any of the following: (a) modify the Commitments of Lenders or subject Lenders to any additional obligations, (b) except as otherwise expressly provided in this Agreement, reduce the interest on any Note, (c) postpone any date fixed for any payment in respect of principal of, or interest on, any Note or any fees hereunder, (d) waive any Event of Default that occurred as a result of Borrowers’ failure to comply with Sections 6.4(a), 6.4(b) or 6.4(d), (e) subject to section (b) below, waive any Event of Default that occurred as a result of Borrowers’ failure to comply with Section 7.8, (f) amend any provision contained in Article VIII or amend Section 6.4, (g) change the percentage of the Commitments, or any minimum requirement necessary for Lenders or the Required Lenders to take any action hereunder, (h) amend or waive this Section 10.2, or change the definition of Required Lenders, (i) except as otherwise expressly provided in this Agreement, and other than in connection with the financing, refinancing, sale or other disposition of any Property of Borrowers permitted under this Agreement, release any Liens in favor of Lenders on any portion of the Collateral, (j) permit Borrowers or any guarantor to delegate, transfer or assign any of its, his or her obligations to any Lender, (k) release or compromise the obligations of Borrowers or any guarantor to any Lender, or (l) amend the definition of “Borrowing Base” (or any defined term used in either such definition), or increase any advance rate and, provided , further , that no amendment, waiver or consent affecting the rights or duties of Agent under any Credit Document shall in any event be effective, unless in writing and signed by Agent, as applicable, in addition to Lenders required hereinabove to take such action. Notwithstanding any of the foregoing to the contrary, the consent of Borrowers shall not be required for any amendment, modification or waiver of the provisions of Article 11 . In addition, Borrowers and Lenders hereby authorize Agent to modify this Agreement by unilaterally amending or supplementing Schedule 1 from time to time in the manner requested by Borrower, Agent or any Lender in order to reflect any assignments or transfers of the Loans as provided for hereunder; provided , however , that Agent shall promptly deliver a copy of any such modification to Borrowers and each Lender.

(b) Notwithstanding anything contained in clause (a) above, any other provision of this Agreement or whether there exists a Default or Event of Default, Agent may at its discretion and without the consent of Required Lenders, voluntarily permit the outstanding Advances at any time to exceed the Borrowing Base by up to 5.0% of the Borrowing Base for up to fifteen (15) consecutive Business Days (the “Out of Formula Loans”). If Agent is willing in its sole and absolute discretion to permit such Out of Formula Loans, such Out of Formula Loans shall be payable on demand and shall bear interest at 2.50% per annum above the rate otherwise applicable to the Advances; provided however that, if Agent, on behalf of Lenders, permits Out of Formula Loans (and thereafter continues to make, on behalf of Lenders, Advances under such conditions), neither Agent nor Lenders shall be deemed thereby to have changed the limits contained in Section 2.1.

Section 10. 3 APPLICABLE LAW . THIS AGREEMENT AND ALL DOCUMENTS EXECUTED IN CONNECTION HEREWITH SHALL BE DEEMED TO

HAVE BEEN MADE AND TO BE PERFORMABLE IN THE STATE OF IOWA AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF IOWA.

Section 10. 4 Notices . All communications provided for hereunder shall be in writing and shall be deemed to have been delivered, if delivered in person, or sent by certified mail, postage pre-paid, return receipt requested, by reliable overnight courier or by facsimile, as follows:

If to Agent:

Wells Fargo Bank, N.A.

123 South Broad Street, 5 th Floor

MAC: Y1379-059

Philadelphia, Pennsylvania 19109

Attn: Mr. William M. Laird, Senior Vice President

Facsimile: (215) 670-6120

With a copy to:

Blank Rome LLP

One Logan Square

Philadelphia, Pennsylvania 19103

Attn: Kevin J. Baum, Esquire

Facsimile: (215) 569-5612

If to Borrowers:

C & F Finance Company

3600 LaGrange Parkway

Toano, VA 23168

Attn: Mr. Thomas Cherry

Facsimile: 757-741-2813

With a copy to:

Hudson & Bondurant, P.C.
P.O. Box 231

West Point, Virginia 23181
Attn: James H. Hudson III, Esquire
Facsimile: (804) 843-4946

or to such other address as any party shall specify to the other party in writing in accordance with this Section 10.4.

Section 10. 5 Termination and Release . This Agreement shall not terminate until all amounts due under the Notes, this Agreement and any other Credit Document and other Obligations, together with all interest and costs due, shall have been indefeasible paid in full and the Commitment

has expired or otherwise has been terminated. Upon such termination and payment, the Collateral securing the Loan, the Notes, this Agreement and the other Obligations shall be released from the provisions of this Agreement and any right, title and interest of Agent in or to the same shall cease. Thereafter, Agent agrees to deliver to Borrowers such documents as Borrowers may reasonably request to release of record any security interest or lien of Agent in the Collateral.

Section 10. 6 Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. Signature by facsimile or electronic transmission shall bind the parties hereto.

Section 10. 7 Costs , Expenses and Taxes . Borrowers agree to pay immediately upon demand therefor, all legal fees and out-of-pocket expenses of Agent (and following any Default or Event of Default) of each Lender related to the preparation, negotiation, documentation, execution, filing or delivery of this Agreement or any other Credit Documents and any and all waivers, amendments or modifications of any of the Credit Documents or any of the terms and provisions thereof and, following any Default or Event of Default hereunder, and, subject to Section 6.3 hereof, any and all audits and required inspections permitted under this Agreement or any other Credit Document. Borrowers shall also pay immediately upon demand therefor all fees (including without limitation, legal fees), costs and other expenses incurred in connection with collection of the Loan, the maintenance or preservation of the security interest in the Collateral, the sale, disposition or other realization on the Collateral, or the enforcement of Agent’s and Lenders’ rights hereunder or under any Credit Document. In addition, Borrowers shall also pay any and all stamp and other taxes or filing fees payable or determined to be payable in connection with the execution and delivery of the Notes and this Agreement, the Collateral and other documents to be delivered hereunder, and agrees to save Agent and Lenders harmless from and against any and all liabilities with respect to or resulting from any delay in payment or omission to pay such taxes.

Section 10. 8 Participation and Assignments .

(a) This Agreement shall bind and inure to the benefit of each signatory, its successors and assigns; provided, however that, Borrowers shall not have the right to assign or delegate their obligations and duties under this Agreement or any other Credit Documents or any interest therein except with the prior written consent of Agent and Lenders.

(b) Notwithstanding subsection (c) of this Section 10.8, nothing herein shall restrict, prevent or prohibit any Lender from (i) pledging its Loans hereunder to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank or (ii) granting assignments or participations in such Lender’s Loans hereunder to its parent and/or to any affiliate of such Lender or to any existing Lender or affiliate thereof. Any Lender may make, carry or transfer Loans at, to or for the account of, any of its branch offices or the office of an affiliate of such Lender except to the extent such transfer would result in increased costs to Borrower.

(c) Each Lender may, with the prior written consent of Agent and (if no Default or Event of Default is outstanding) with the consent of Borrowers, but without the consent of any other Lender, assign to one or more banks or other financial institutions all or a portion of its rights and obligations under this Agreement and the Notes; provided that (i) for each such assignment, the

parties thereto shall execute and deliver to Agent, for its acceptance (if properly completed and executed in accordance with the terms hereof) and recording in its books and records, an Assignment and Acceptance, together with any Note or Notes subject to such assignment and a processing and recordation fee of $3,500 to be paid by the assignee, (ii) no such assignment shall be for less than $1,000,000 or, if less, the entire remaining Commitments of such Lender, each such assignment shall be of a uniform, and not a varying, percentage of all rights and obligations under and in respect of both the Commitment of such Lender and all Loans of such Lender. Upon such execution and delivery of the Assignment and Acceptance to Agent, from and after the date specified as the effective date in the Assignment and Acceptance (“Acceptance Date”), (x) the assignee thereunder shall be a party hereto, and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, such assignee shall have the rights and obligations of a Lender hereunder and (y) the assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (other than any rights it may have pursuant to Section 10.1 which will survive) and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto).

(d) Within two (2) Business Days after demand by Agent, Borrowers shall execute and deliver to Agent in exchange for any surrendered Note or Notes (which the assigning Lender agrees to promptly deliver to Borrowers) a new Note or Notes to the order of the assignee in an amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Commitment hereunder, a new Note or Notes to the order of the assigning Lender in an amount equal to the Commitment retained by it hereunder. Such new Note or Notes shall re-evidence the indebtedness outstanding under the old Notes or Notes and shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes and shall otherwise be in substantially the form of the Note or Notes subject to such assignments.

(e) Each Lender may, with the prior written consent of Agent, but without the consent of any other Lender or Borrowers, sell participations to one or more parties (a “Participant”) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Loans owing to it and the Note or Notes held by it); provided that if such Lender obtains the consents required under this clause (e) then (i) such Lender’s obligations under this Agreement (including, without limitation, its Commitments to Borrowers hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Note for all purposes of this Agreement, (iv) Borrowers, Agent, and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement and (v) such Lender shall not transfer, grant, assign or sell any participation under which the Participant shall have rights to approve any amendment or waiver of this Agreement except to the extent such amendment or waiver would (A) extend the final maturity date or the date for the payments of any installment of fees or principal or interest of any Loans reimbursement obligations in which such participant is participating, (B) reduce the amount of any installment of principal of the Loans or in which such Participant is participating, (C) except as otherwise expressly provided in this Agreement, reduce the interest rate applicable to the Loans or in which such Participant is participating, or (D) except as otherwise expressly provided in this

Agreement, reduce any fees payable hereunder; and provided further that Agent shall provide Borrowers with information sufficient to identify purchasers of participations to which it has consented pursuant to this paragraph (such information may be provided on a quarterly basis).

(f) Each Lender agrees that, without the prior written consent of Borrowers and Agent, it will not make any assignment or sell a participation hereunder in any manner or under any circumstances that would require registration or qualification of, or filings in respect of, any Advance, Note or other Obligation under the securities laws of the United States of America or of any jurisdiction.

(g) In connection with the efforts of any Lender to assign its rights or obligations or to participate interests, Agent or such Lender may disclose any information in its possession regarding Borrower, its finances and/or Property.

Section 10. 9 Effectiveness of Agreement . Anything to the contrary in this Agreement notwithstanding, the provisions hereof shall not be effective until this Agreement is: (a) duly executed, and delivered by authorized officers of Borrowers to Agent; and (b) duly signed by an authorized officer of Agent and Lender.

Section 10. 10 JURISDICTION AND VENUE . IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY CREDIT DOCUMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER, BORROWERS HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN POLK COUNTY, IOWA AND AGREE NOT TO RAISE ANY OBJECTION TO SUCH JURISDICTION OR TO THE LAYING OR MAINTAINING OF THE VENUE OF ANY SUCH PROCEEDING IN SUCH COUNTY. BORROWERS AGREE THAT SERVICE OF PROCESS IN ANY SUCH PROCEEDING MAY BE DULY EFFECTED UPON IT BY MAILING A COPY THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO BORROWERS.

Section 10. 11 WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY CREDIT DOCUMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR AGENT AND LENDERS TO ENTER INTO THIS AGREEMENT.

Section 10. 12 REVIEW BY COUNSEL . BORROWERS ACKNOWLEDGE THAT THEY HAVE HAD THE ASSISTANCE OF COUNSEL IN THE REVIEW AND EXECUTION OF THIS AGREEMENT AND, SPECIFICALLY, SECTIONS 10.10 AND 10.11 HEREOF, AND FURTHER ACKNOWLEDGE THAT THE MEANING AND EFFECT OF THE FOREGOING WAIVER OF JURISDICTION AND VENUE OBJECTION AND JURY TRIAL HAVE BEEN FULLY EXPLAINED TO BORROWERS BY THEIR COUNSEL.

Section 10. 13 Exchanging Information . Borrowers understand that employees of Agent,

Lenders and their Affiliates, Wells Fargo & Company and Wells Fargo Financial, Inc. were involved in the credit decision underlying this Agreement. Borrowers consent to the disclosure of confidential information to such employees of Agent, Lenders and their Affiliates, Wells Fargo & Company and Wells Fargo Financial, Inc. solely for such purpose and to the disclosure of such confidential information in connection with the administration of this Agreement and the transactions contemplated hereunder and for internal and external audit purposes. Agent and Lenders shall be entitled to provide all information received by Agent and Lenders regarding Borrowers and their Affiliates, on a need to know basis, to Agent’s and Lenders’ prospective participants in the Loan and Borrowers waive any right of confidentiality they may have with respect to such exchange of such information.

Section 10. 14 Acknowledgment of Receipt . Each Borrower acknowledges receipt of a copy of this Agreement, the Notes, each Credit Document and each other document and agreement executed by Borrowers in connection with the Agreement or the Obligations.

ARTICLE 11

AGENT

Section 11. 1 Appointment of Agent .

(a) Each Lender hereby designates Wells Fargo Bank, N.A. as Agent to act as herein specified. Each Lender hereby irrevocably authorizes, and each holder of any Note by the acceptance of a Note or participation, shall be deemed irrevocably to authorize Agent to take such action on its behalf under the provisions of this Agreement and the Notes and any other Credit Documents and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. Agent shall hold all Collateral and all payments of principal, interest, fees (other than the administrative fee payable solely for the account of Agent pursuant to Section 2.9 hereof), charges and expenses received pursuant to this Agreement or any other Credit Document for the ratable benefit of Lenders except as otherwise provided herein. Agent may perform any of its duties hereunder by or through its agents or employees.

(b) The provisions of this Article 11 are solely for the benefit of Agent and Lenders, and Borrowers shall not have any rights as a third party beneficiary of any of the provisions hereof (except for the applicable provision of Section 11.9(a)). In performing its functions and duties under this Agreement, Agent shall act solely as agent of Lenders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for Borrowers.

Section 11. 2 Nature of Duties of Agent . Agent shall have no duties or responsibilities except those expressly set forth in this Agreement. Neither Agent nor any of its officers, directors, employees or agents shall be liable for any action taken or omitted by it as such hereunder or in connection herewith, unless caused by its or their gross negligence or willful misconduct. The duties of Agent shall be mechanical and administrative in nature; Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender; and nothing in this Agreement, expressed or implied, is intended to or shall be so construed as to impose upon Agent any obligations in respect

of this Agreement except as expressly set forth herein.

Section 11. 3 Lack of Reliance on Agent .

(a) Independently and without reliance upon Agent, each Lender, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial or other condition and affairs of Borrowers in connection with the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of Borrowers, and, except as expressly provided in this Agreement, Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of Advances or at any time or times thereafter. In addition to the foregoing, Agent agrees to provide summary reports to Lenders in connection with inspections and audits performed under Section 6.3 for informational purposes only and Agent shall not be responsible for the accuracy of any information contained therein.

(b) Agent shall not be responsible to any Lender for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, priority or sufficiency of this Agreement, the Notes, the Credit Documents or the financial or other condition of Borrowers. Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or the Notes, or the financial condition of Borrowers, or the existence or possible existence of any Default or Event of Default, unless specifically requested to do so in writing by any Lender.

Section 11. 4 Certain Rights of Agent . Without limiting Agent’s rights and discretion under any provision hereof, Agent shall have the right to request instructions from the Required Lenders or, as required, each of Lenders. If Agent shall request instructions from the Required Lenders or each of Lenders, as the case may be, with respect to any act or action (including the failure to act) in connection with this Agreement, Agent shall be entitled to refrain from such act or taking such action unless and until Agent shall have received instructions from the Required Lenders or each of Lenders, as the case may be, and Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting hereunder in accordance with the instructions of the Required Lenders or each of Lenders, as the case may be.

Section 11. 5 Reliance by Agent . Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, facsimile, telex teletype or telecopier message, e-mail or other electronic transmission, cablegram, radiogram, order or other documentary, teletransmission or telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper person. Agent may consult with legal counsel (including counsel for Borrowers with respect to matters concerning Borrowers), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts.

Section 11. 6 Indemnification of Agent . To the extent Agent is not reimbursed and indemnified by Borrowers, each Lender will reimburse and indemnify Agent, in proportion to its

respective Commitment, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including reasonable counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Agent in any way relating to or arising out of this Agreement, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from Agent’s gross negligence or willful misconduct.

Section 11. 7 Agent in its Individual Capacity . With respect to its obligation to lend under this Agreement, the Advances made by it and the Notes issued to it and all of its rights and obligations as a Lender hereunder and under other Credit Documents, Agent shall have the same rights and powers hereunder as any other Lender or holder of a Note or participation interests and may exercise the same as though it was not performing the duties specified herein; and the terms “Lenders”, “Required Lenders”, “holders of Notes”, or any similar terms shall, unless the context clearly otherwise indicates, include Agent in its individual capacity. Agent may accept deposits from, lend money to, acquire equity interests in, and generally engage in any kind of banking, trust, financial advisory or other business with Borrowers or any Affiliate of Borrowers as if it were not performing the duties specified herein, and may accept fees and other consideration from Borrowers for services in connection with this Agreement and otherwise without having to account for the same with Lenders.

Section 11. 8 Holders of Notes . Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note, shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor.

Section 11. 9 Successor Agent .

(a) Agent may, upon five (5) Business Days notice to Lenders and Borrowers, resign at any time (effective upon the appointment of a successor Agent pursuant to the provisions of this Section 11.9(a)) by giving written notice thereof to Lenders and Borrowers. Upon any such resignation, the Required Lenders shall have the right, upon five (5) days notice, to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within thirty (30) days after the retiring Agent’s giving of notice of resignation, then, upon five (5) days notice, the retiring Agent may, on behalf of Lenders, appoint a successor Agent, which shall be a bank or other financial institution which maintains an office in the United States, or a commercial bank organized under the laws of the United States of America or of any State thereof, or any affiliate of such bank or trust or other financial institution which is engaged in the banking business, having a combined capital and surplus of at least $500,000,000; provided, however, that Required Lenders may, upon five days notice, replace any such successor Agent appointed by a retiring Agent.

(b) Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties

and obligations under this Agreement. After any retiring Agent’s resignation hereunder as Agent, the provisions of this Article XI shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. In the event Agent or its assets are taken over by any state or federal agency having jurisdiction over Agent or its assets, a majority of the Lenders other than Agent may appoint a successor Agent.

Section 11. 10 Collateral Matters .

(a) Each Lender authorizes and directs Agent to accept the other Credit Documents for the benefit of Lenders. Agent is hereby authorized, on behalf of all Lenders, without the necessity of any notice to or further consent from any Lender, from time to time prior to an Event of Default, to take any action, in its sole discretion, with respect to any Collateral or Credit Document which may be necessary or appropriate to perfect and maintain perfected or enforce the Liens upon the Collateral granted pursuant to the this Agreement.

(b) Lenders hereby authorize Agent, at its option and in its discretion, to release any Lien granted to or held by Agent upon any Collateral (i) upon termination of the Commitments and payment in immediately available funds and satisfaction of all of the Obligations at any time arising under or in respect of this Agreement or the Credit Documents or the transactions contemplated hereby or thereby, (ii) constituting Property being sold or disposed of upon receipt of the proceeds of such sale by Agent if the sale or disposition is permitted under this Agreement or any other Credit Document or is made by Agent in the enforcement of its rights hereunder following the occurrence of an Event of Default or (iii) if approved, authorized or ratified in writing by the Required Lenders, unless such release is required to be approved by all Lenders hereunder. Upon request by Agent at any time, Lenders will confirm in writing Agent’s authority to release particular types or items of Collateral pursuant to this Section 11.10(b).

(c) Agent shall have no obligation whatsoever to Lenders or to any other Person to assure that the Collateral exists or is in the possession of a custodian pursuant to the Custodian Agreement or is owned by Borrowers or is cared for, protected or insured or that the Liens granted to Agent herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise or to continue exercising at all or in any manner or under any duty of care, disclosure or fidelity any of the rights, authorities and powers granted or available to Agent in this Section 11.10 or in any of the Credit Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, Agent may act in any manner it may deem appropriate, in its sole discretion, given Agent’s own interest in the Collateral as one of Lenders and that Agent shall have no duty or liability whatsoever to Lenders, except for its gross negligence or willful misconduct.

Section 11. 11 Delivery of Information . Agent shall not be required to deliver to any Lender originals or copies of any documents, instruments, agreements, notices, communications or other information received by Agent from Borrowers, the Required Lenders, any Lender or any other Person under or in connection with this Agreement or any other Credit Document except (a) as specifically provided in this Agreement or any other Credit Document and (b) as requested from time to time in writing by any Lender with respect to documents, instruments, notices or other written communications from Borrowers received by and in the possession of Agent.

Section 11. 12 Defaults . Agent shall not be deemed to have knowledge of the occurrence of a Default or Event of Default (other than the non-payment of principal of or interest on the Loan to the extent the same is required to be paid to Agent for the account of Lenders) unless Agent has actual knowledge thereof or has received notice from a Lender or Borrowers specifying such Default or Event of Default and stating that such notice is a “Notice of Default.” In the event that Agent has such knowledge of or receives such a notice of the occurrence of a Default or Event of Default, Agent shall give prompt notice thereof to Lenders. Agent shall (subject to Article IX) take such action with respect to such Default or Event of Default or refrain from taking such action, with respect to such Default or Event of Default as Agent shall deem advisable in the best interest of Lenders and shall, without limiting Agent’s rights or discretion under this Agreement, use reasonable efforts under the circumstances to consult with Lenders before taking any material enforcement action; and provided further that Agent shall not be required to take any such action which it determines to be contrary to law.

ARTICLE 12

INTER-BORROWER PROVISIONS

Section 12. 1 Certain Borrower Acknowledgments and Agreements .

(a) Each Borrower acknowledges that it will enjoy significant benefits from the business conducted by the other Borrowers because of, inter alia , their combined ability to bargain with other Persons including without limitation their ability to receive this credit facility on favorable terms granted by this Agreement and other Credit Documents which would not have been available to an individual Borrower acting alone. Each Borrower has determined that it is in its best interest to procure this credit facility which each Borrower may utilize directly and which receive the credit support of the other Borrowers as contemplated by this Agreement and the other Credit Documents.

(b) Agent has advised Borrowers that it is unwilling to enter into this Agreement and the other Credit Documents and make available this credit facility extended hereby to any Borrower unless each Borrower agrees, among other things, to be jointly and severally liable for the due and proper payment of the Obligations of each other Borrower under this Agreement and other Credit Documents. Each Borrower has determined that it is in its best interest and in pursuit of its purposes that it so induce Lender to extend credit pursuant to this Agreement and the other Credit Documents executed in connection herewith (i) because of the desirability to each Borrower of this credit facility, the interest rates and the modes of borrowing available hereunder, (ii) because each Borrower may engage in transactions jointly with other Borrowers and (iii) because each Borrower may require, from time to time, access to funds under this Agreement for the purposes herein set forth.

(c) Each Borrower has determined that it has and, after giving effect to the transactions contemplated by this Agreement and the other Credit Documents (including, without limitation, the inter-Borrower arrangement set forth in this Section 12.1) will have, assets having a fair saleable value in excess of the amount required to pay its probable liability on its existing debts as they fall due for payment and that the sum of its debts is not and will not then be greater than all of its Property at a fair valuation, that such Borrower has, and will have, access to adequate capital for the conduct of its business and the ability to pay its debts from time to time incurred in connection

therewith as such debts mature and that the value of the benefits to be derived by such Borrower from the access to funds under this Agreement (including, without limitation, the inter-Borrower arrangement set forth in this Section 12.1) is reasonably equivalent to the obligations undertaken pursuant hereto.

(d) Borrower Agent (on behalf of each Borrower) shall maintain records specifying (a) all Obligations incurred by each Borrower, (b) the date of such incurrence, (c) the date and amount of any payments made in respect of such Obligations and (d) all inter-Borrower obligations pursuant to this Section 12. Borrower Agent shall make copies of such records available to Agent, upon request.

Section 12. 2 Maximum Amount of Joint and Several Liability . To the extent that applicable law otherwise would render the full amount of the joint and several obligations of any Borrower hereunder and under the other Credit Documents invalid or unenforceable, such Borrower’s obligations hereunder and under the other Credit Documents shall be limited to the maximum amount which does not result in such invalidity or unenforceability, provided , however, that each Borrower’s obligations hereunder and under the other Loan Credit shall be presumptively valid and enforceable to their fullest extent in accordance with the terms hereof or thereof, as if this Section 12.2 were not a part of this Agreement.

Section 12. 3 Authorization of Borrower Agent by Borrowers :

(a) Each Borrower hereby irrevocably authorizes Borrower Agent to give notices, make requests, make payments, receive payments and notices, give receipts and execute agreements, make agreements or take any other action whatever on behalf of such Borrower under and with respect to any Credit Document and each Borrower shall be bound thereby. This authorization is coupled with an interest and shall be irrevocable, and Agent may rely on any notice, request, information supplied by Borrower Agent, every document executed by Borrower Agent in respect of Borrowers or any thereof as if the same were supplied, made or taken by any or all Borrowers. Without limiting the generality of the foregoing, the failure of one or more Borrowers to join in the execution of any writing in connection herewith shall not, unless the context clearly requires, relieve any such Borrower from obligations in respect of such writing.

(b) Borrowers acknowledge that the credit facility provided hereunder is on terms more favorable than any Borrower acting alone would receive and that each Borrower benefits directly and indirectly from all Advances hereunder.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.

Dated the date and year first set forth above

BORROWERS:	C & F FINANCE COMPANY

	By:
	Name:
	Title:

AGENT:	WELLS FARGO BANK, N.A.

	By:


LENDERS:	WELLS FARGO BANK, N.A.

	By:


	FIRST TENNESSEE BANK, NATIONAL
	ASSOCIATION

	By:
	Name:
	Title:

[SIGNATURE PAGE TO LOAN AND SECURITY AGREEMENT]

S-1

SCHEDULE I

Commitments

Lender	Commitment	Commitment
	Percentage

Wells Fargo Preferred Capital, Inc.	83.34%	$100,000,000

First Tennessee Bank, National Association	16.66%	$20,000,000

Exhibit 31.1

CERTIFICATIONS

I, Thomas F. Cherry, certify that:

1. I have reviewed this quarterly report on Form 10-Q of C&F Financial Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Ugust 7
Date	May 8, 2019

		/s/ Thomas F. Cherry
		Thomas F. Cherry, President and Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

I, Jason E. Long, certify that:

1. I have reviewed this quarterly report on Form 10-Q of C&F Financial Corporation;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Ugust
Date	May 8, 2019

		/s/ Jason E. Long
		Jason E. Long, Senior Vice President and Chief Financial Officer

Exhibit 32

CERTIFICATION

The undersigned, as the chief executive officer and the chief financial officer of C&F Financial Corporation, respectively, certify that to the best of their knowledge and belief the Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, which accompanies this certification, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of C&F Financial Corporation at the dates and for the periods indicated. The foregoing certification is made pursuant to §906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350), and shall not be relied upon for any other purpose. The undersigned expressly disclaim any obligation to update the foregoing certification except as required by law.


Date	May 8, 2019

		/s/ Thomas F. Cherry
		Thomas F. Cherry
		President and Chief Executive Officer

Ugust
Date	May 8, 2019

		/s/ Jason E. Long
		Jason E. Long
		Senior Vice President and Chief Financial Officer