UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period Ended September 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the transition period from to
Commission File No. 0-12896 (1934 Act)
OLD POINT FINANCIAL CORPORATION
-------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-1265373
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1 West Mellen Street, Hampton, Va. 23663
------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (757) 722-7451
Not Applicable
--------------
Former name, former address and former fiscal year, if
changed since last report.
Check whether the registrant (1) has filed all reports
required to be filed by Section 12, 13 or 15(d) of the Exchange
Act 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 X No
State the number of shares outstanding of each of the issuer's
classes of common stock as of October 31, 2002.
Class Outstanding at October 31, 2002
----- -------------------------------
Common Stock, $5.00 par value 2,618,356 shares
<page>
OLD POINT FINANCIAL CORPORATION
FORM 10-Q
INDEX
-----
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements...............................................1
Consolidated Balance Sheets
September 30, 2002 and December 31, 2001....................1
Consolidated Statement of Earnings
Three months ended September 30, 2002 and 2001..............2
Nine months ended September 30, 2002 and 2001...............2
Consolidated Statement of Cash Flows
Nine months ended September 30, 2002 and 2001...............3
Consolidated Statements of Changes in Stockholders' Equity
Nine months ended September 30, 2002 and 2001...............4
Notes to Consolidated Financial Statements.........................5
Parent Only Balance Sheets
September 30, 2002 and December 31, 2001.............6
Parent Only Statement of Earnings
Three months ended September 30, 2002 and 2001.......6
Nine months ended September 30, 2002 and 2001........6
Parent Only Statement of Cash Flows
Nine months ended September 30, 2002 and 2001........7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................8
Analysis of Changes in Net Interest Income..................9
Item 3. Quantitative and Qualitative Disclosures about Market Risk........14
Item 4. Disclosure Controls and Procedures................................15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................16
(i)
<page>
<table>
<caption>
- ----------------------------------------------------------------------------------------
Unaudited September 30, December 31,
Consolidated Balance Sheets 2002 2001
- ----------------------------------------------------------------------------------------
<s> <c> <c>
Assets
Cash and due from banks................................... $ 12,644,491 $ 14,402,541
Interest bearing balances due from banks.................. 306,739 383,324
------------ ------------
Total cash due from banks.............................. $ 12,951,230 $ 14,785,865
Investments:
Securities available for sale, at market................ 101,191,699 97,917,884
Securities to be held to maturity....................... 33,361,348 38,082,927
Trading account securities................................ - -
Federal funds sold........................................ 20,885,802 5,018,240
Loans, total ............................................. 372,874,638 346,482,751
Less reserve for loan losses.......................... 4,538,725 3,893,559
------------ ------------
Net loans......................................... 368,335,913 342,589,192
Bank premises and equipment............................... 13,362,766 14,419,564
Other real estate owned................................... 1,496,341 1,003,229
Other assets.............................................. 10,534,203 4,942,161
------------ ------------
Total assets......................................... $562,119,302 $518,759,062
============ ============
Liabilities
Noninterest-bearing deposits.............................. $ 88,468,421 $ 79,978,127
Savings deposits.......................................... 150,060,002 140,848,118
Time deposits............................................. 203,444,278 191,476,949
------------ ------------
Total deposits......................................... 441,972,701 412,303,194
Federal funds purchased and securities sold under
agreement to repurchase............................... 24,327,232 28,320,881
Interest-bearing demand notes issued to the United States
Treasury and other liabilities for borrowed money...... 6,000,000 369,075
Federal Home Loan Bank.................................... 30,000,000 25,000,000
Other liabilities......................................... 2,916,935 1,853,841
------------ ------------
Total liabilities...................................... 505,216,868 467,846,991
Stockholders' Equity
Common stock, $5.00 par value............................. $ 13,084,280 $ 12,997,885
2002 2001
Shares authorized.... 10,000,000 10,000,000
Shares outstanding... 2,616,856 2,599,577
Surplus................................................... 10,953,241 10,455,061
Undivided profits......................................... 30,983,438 27,340,908
Accumulated other comprehensive income (loss)............. 1,881,475 118,217
------------ ------------
Total stockholders' equity............................ 56,902,434 50,912,071
------------ ------------
Total liabilities and stockholders' equity............ $562,119,302 $518,759,062
============ ============
</table>
1
<page>
<table>
<caption>
- ---------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
Consolidated Statements of Earnings September 30, September 30,
2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Interest Income
Interest and fees on loans.................................... $ 6,933,875 $ 6,970,974 $ 20,357,364 $ 20,843,665
Interest on federal funds sold................................ 74,798 115,433 165,766 495,121
Interest on securities:
Interest on United States Treasury securities (taxable)....... 17,666 20,829 64,791 67,770
Interest on obligations of other
United States Government agencies (taxable)................. 984,643 1,028,384 3,022,350 2,902,726
Interest on obligations of states and
political subdivisions (tax exempt)......................... 579,870 618,025 1,761,858 1,879,235
Interest on obligations of states and
political subdivisions (taxable)............................ 18,792 19,349 57,118 58,790
Interest on trading account securities........................ - - - -
Dividends and interest on all other securities................ 28,854 78,644 90,668 255,875
----------- ----------- ------------ ------------
Total interest on securities............................ 1,629,825 1,765,231 4,996,785 5,164,396
----------- ----------- ------------ ------------
Total interest income..................................... 8,638,498 8,851,638 25,519,915 26,503,182
Interest Expense
Interest on savings deposits.................................. 407,896 618,560 1,234,453 2,340,952
Interest on time deposits..................................... 2,050,586 2,723,513 6,412,133 8,398,223
Interest on federal funds purchased and securities
sold under agreement to repurchase.......................... 99,250 212,636 298,528 755,157
Interest on Federal Home Loan Bank advances................... 436,939 387,806 1,199,904 1,150,771
Interest on demand notes (note balances) issued to the
United States Treasury and on other borrowed money.......... 7,913 15,997 23,208 59,332
----------- ----------- ------------ ------------
Total interest expense.................................... 3,002,584 3,958,512 9,168,226 12,704,435
Net interest income........................................... 5,635,914 4,893,126 16,351,689 13,798,747
Provision for loan losses..................................... 600,000 400,000 1,300,000 800,000
----------- ----------- ------------ ------------
Net interest income after provision for loan losses........... 5,035,914 4,493,126 15,051,689 12,998,747
Other Income
Income from fiduciary activities.............................. 603,246 756,836 1,700,718 2,076,004
Service charges on deposit accounts........................... 721,276 685,942 2,150,334 1,906,123
Other service charges, commissions and fees................... 247,094 184,788 815,734 570,558
Other operating income........................................ 213,858 116,986 619,197 276,763
Security gains (losses)....................................... 2,391 - 11,789 -
Trading account income........................................ - - - -
----------- ----------- ------------ ------------
Total other income........................................ 1,787,865 1,744,552 5,297,772 4,829,448
Other Expenses
Salaries and employee benefits................................ 2,798,545 2,551,805 8,104,269 7,444,968
Occupancy expense of Bank premises............................ 284,399 284,065 853,692 831,054
Furniture and equipment expense............................... 408,042 404,201 1,228,697 1,225,704
Other operating expenses...................................... 1,047,734 999,880 3,271,035 2,963,961
----------- ----------- ------------ ------------
Total other expenses...................................... 4,538,720 4,239,951 13,457,693 12,465,687
----------- ----------- ------------ ------------
Income before taxes........................................... 2,285,059 1,997,727 6,891,768 5,362,508
Applicable income taxes....................................... 554,260 486,278 1,691,100 1,251,978
----------- ----------- ------------ ------------
Net income.................................................... $ 1,730,799 $ 1,511,449 $ 5,200,668 $ 4,110,530
=========== =========== ============ ============
Per Share
Based on weighted average number of
common shares outstanding................................... 2,612,201 2,595,876 2,606,263 2,592,338
Basic Earnings per Share...................................... $ 0.66 $ 0.58 $ 2.00 $ 1.59
Diluted Earnings per Share.................................... $ 0.65 $ 0.58 $ 1.95 $ 1.57
</table>
2
<page>
<table>
<caption>
- -----------------------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION Nine Months Ended
Consolidated Statements of Cash Flows September 30,
(Unaudited) 2002 2001
- -----------------------------------------------------------------------------------------------
<s> <c> <c>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 5,200,668 $ 4,110,530
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................. 1,029,344 1,077,465
Provision for loan losses................................. 1,300,000 800,000
(Gains) loss on sale of investment securities, net........ (11,789) -
Net amortization & accretion of securities ............... 57,814 26,219
Net (increase) decrease in trading account................ - -
Loss on disposal of bank premises and equipment........... 92,591 -
(Increase) Decrease in other real estate owned............ (997,542) (555,000)
(Increase) decrease in other assets
(net of tax effect of FASB 115 adjustment).............. (6,688,925) (342,248)
Increase (decrease) in other liabilities.................. 697,109 607,768
-------------- --------------
Net cash provided by operating activities............... 679,270 5,724,734
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities .................................. (31,988,224) (36,153,730)
Proceeds from maturities & calls of securities ........... 34,137,900 26,759,429
Proceeds from sales of available - for - sale securities.. 2,478,189 1,300,000
Proceeds from sales of held - to - maturity securities.... - -
Loans made to customers................................... (187,072,518) (136,515,302)
Principal payments received on loans...................... 160,025,797 117,654,186
Proceeds from sales of other real estate owned............ 1,019,430 460,000
Purchases of premises and equipment....................... (580,137) (633,951)
(Increase) decrease in federal funds sold................. (15,867,562) (6,074,109)
-------------- --------------
Net cash provided by (used in) investing activities..... (37,847,125) (33,203,477)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in non-interest bearing deposits...... 8,490,294 2,829,463
Increase (decrease) in savings deposits................... 9,211,884 10,283,301
Proceeds from the sale of certificates of deposit......... 91,058,080 52,740,326
Payments for maturing certificates of deposit............. (79,090,751) (42,303,473)
Increase (decrease) in federal funds purchased &
repurchase agreements.................................... (3,993,649) 1,355,527
Increase (decrease) in Federal Home Loan Bank advances.... 5,000,000 -
Increase (decrease) in other borrowed money............... 5,630,925 3,916,625
Proceeds from issuance of common stock.................... 329,772 98,342
Dividends paid............................................ (1,303,335) (1,192,502)
-------------- --------------
Net cash provided by financing activities............... 35,333,220 27,727,609
Net increase (decrease) in cash and due from banks...... (1,834,635) 248,866
Cash and due from banks at beginning of period.......... 14,785,865 11,043,772
-------------- --------------
Cash and due from banks at end of period................ $ 12,951,230 $ 11,292,638
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest................................................ $ 9,405,204 $ 12,907,040
Income taxes............................................ 1,990,000 1,250,000
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Unrealized gain (loss) on investment securities, net
of tax................................................. 2,129,243 1,490,611
Additional minimum liability related to pension.......... (365,985) -
Transfer of property from Premises & Equipment to Other
Real Estate Owned..................................... 515,000 -
</table>
See accompanying notes
3
<page>
<table>
<caption>
- ---------------------------------------------------------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unaudited Accumulated
Other Total
Common Stock Par Capital Retained Comprehensive Stockholder's
Shares Value Surplus Earnings Income(Loss) Equity
- ---------------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
FOR NINE MONTHS ENDED SEPTEMBER 30, 2002
Balance at beginning of period.............. 2,599,577 $ 12,997,885 $ 10,455,061 $ 27,340,908 $ 118,217 $ 50,912,071
Comprehensive Income
Net income................................ - - - 5,200,668 - 5,200,668
Increase (decrease) in unrealized
gain on investment securities - - - - 2,129,243 2,129,243
Minimum pension liability adjustment........ (365,985) (365,985)
--------- ------------ ------------ ------------ ------------ ------------
Total Comprehensive Income 5,200,668 1,763,258 6,963,926
Sale of common stock........................ 17,279 86,395 498,180 (254,803) - 329,772
Cash dividends............... .............. - - - (1,303,335) - (1,303,335)
--------- ------------ ------------ ------------ ------------ ------------
Balance at end of period.................... 2,616,856 $ 13,084,280 $ 10,953,241 $ 30,983,438 $ 1,881,475 $ 56,902,434
FOR NINE MONTHS ENDED SEPTEMBER 30, 2001
Balance at beginning of period.............. 2,590,540 $ 12,952,700 $ 10,288,301 $ 23,297,402 $ (40,918) $ 46,497,485
Comprehensive Income
Net income................................ - - - 4,110,530 - 4,110,530
Increase (decrease) in unrealized
gain on investment securities - - - - 1,490,611 1,490,611
Minimum pension liability adjustment........ - - - - - -
--------- ------------ ------------ ------------ ------------ ------------
Total Comprehensive Income 4,110,530 1,490,611 5,601,141
Sale of common stock........................ 5,336 26,680 89,324 (17,662) - 98,342
Cash dividends............... .............. - - - (1,192,502) - (1,192,502)
--------- ------------ ------------ ------------ ------------ ------------
Balance at end of period.................... 2,595,876 $ 12,979,380 $ 10,377,625 $ 26,197,768 $ 1,449,693 $ 51,004,466
</table>
See accompanying notes
4
<page>
OLD POINT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accounting and reporting policies of the Registrant
conform to generally accepted accounting principles and to
the general practices within the banking industry. The
interim financial statements have not been audited;
however, in the opinion of management, all adjustments
necessary for a fair presentation of the consolidated
financial statements have been included. These adjustments
include estimated provisions for bonus, profit sharing and
pension plans that are settled at year-end. These
financial statements should be read in conjunction with the
financial statements included in the Registrant's 2001
Annual Report to Shareholders and Form 10-K.
2. Basic earnings per common share outstanding are computed by
dividing income by the weighted average number of
outstanding common shares for each period presented.
Diluted earnings per share are computed using the treasury
stock method.
3. Certain amounts in the financial statements have been
reclassified to conform with classifications adopted in the
current year.
5
<page>
<table>
<caption>
- -------------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION
Parent only Balance Sheets September 30, December 31,
(Unaudited) 2002 2001
- -------------------------------------------------------------------------------------
<s> <c> <c>
Assets
Cash in bank........................................... $ 185,884 $ 275,795
Investment Securities.................................. 2,215,000 1,215,000
Total Loans............................................ - -
Investment in Subsidiaries............................. 54,443,092 49,407,931
Equipment.............................................. - -
Other assets........................................... 58,458 13,345
------------ ------------
Total Assets........................................... $ 56,902,434 $ 50,912,071
============ ============
Liabilities and Stockholders' Equity
Total Liabilities...................................... $ - $ -
Stockholders' Equity................................... 56,902,434 50,912,071
------------ ------------
Total Liabilities & Stockholders' Equity............... $ 56,902,434 $ 50,912,071
============ ============
</table>
<table>
<caption>
- -------------------------------------------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION Three Months Ended: Nine Months Ended:
Parent only Income Statements September 30, September 30,
(Unaudited) 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Income
Cash dividends from Subsidiary......................... $ 475,000 $ 425,000 $ 1,375,000 $ 1,275,000
Interest and fees on loans............................. - - - -
Interest income from investment securities............. 26,015 28,062 71,393 88,398
Gains (losses) from sale of investment securities...... - - - -
Other income........................................... 36,000 36,000 108,000 108,000
------------ ------------ ------------ ------------
Total Income........................................... 537,015 489,062 1,554,393 1,471,398
Expenses
Salaries and employee benefits......................... 65,986 57,550 202,738 178,153
Other expenses......................................... 27,136 26,470 74,590 99,646
------------ ------------ ------------ ------------
Total Expenses......................................... 93,122 84,020 277,328 277,799
------------ ------------ ------------ ------------
Income before taxes & undistributed
net income of subsidiaries......................... 443,893 405,042 1,277,065 1,193,599
Income tax............................................. (16,740) (13,722) (51,700) (47,722)
------------ ------------ ------------ ------------
Net income before undistributed
net income of subsidiaries........................... 460,633 418,764 1,328,765 1,241,321
Undistributed net income of subsidiaries............... 1,270,166 1,092,685 3,871,903 2,869,209
------------ ------------ ------------ ------------
Net Income............................................. $ 1,730,799 $ 1,511,449 $ 5,200,668 $ 4,110,530
============ ============ ============ ============
</table>
6
<page>
<table>
<caption>
- ------------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION Nine Months Ended:
Parent only Statements of Cash Flows September 30,
(Unaudited) 2002 2001
- ------------------------------------------------------------------------------------
<s> <c> <c>
Cash Flows from Operating Activities:
Net Income............................................. $ 5,200,668 $ 4,110,530
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed income of subsidiary....... (3,871,903) (2,869,209)
Depreciation......................................... - -
Gains(losses) on sale of securities [net].......... - -
(Increase) Decrease in other assets................ (45,113) (77,129)
Increase (decrease) in other liabilities........... - -
------------ ------------
Net cash provided by operating activities.............. 1,283,652 1,164,192
Cash flows from investing activities:
Purchase of securities................................. - -
Proceeds froms sales of available-for-sale securities.. - -
(Increase)decrease in investment securities............ (1,000,000) (235,000)
Investment in subsidiaries ............................ 600,000 -
Sale of equipment...................................... - -
Repayment of loans by customers........................ - -
------------ ------------
Net cash provided by investing activities.............. (400,000) (235,000)
Cash flows from financing activities:
Proceeds from issuance of common stock................. 329,772 98,342
Dividends paid......................................... (1,303,335) (1,192,502)
------------ ------------
Net cash provided by financing activities.............. (973,563) (1,094,160)
Net increase (decrease) in cash & due from banks....... (89,911) (164,968)
Cash & due from banks at beginning of period........... 275,795 225,339
------------ ------------
Cash & due from banks at end of period................. $ 185,884 $ 60,371
============ ============
</table>
7
<page>
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Earnings Summary
- ----------------
Net income for the third quarter of 2002 increased 14.51% to
$1.73 million from $1.51 million for the comparable period in
2001. Basic earnings per share were $0.66 in the third quarter
of 2002 compared with $0.58 in 2001.
For the nine months ended September 30, 2002 net income increased
26.52% to $5.20 million from $4.11 million in 2001. Basic
earnings per share were $2.00 for the first nine months of 2002
compared with $1.59 in 2001.
Return on average assets was 1.25% for the third quarter of 2002
and 1.19% for the comparable period in 2001. Return on average
equity was 12.30% for the third quarter of 2002 and 11.97% for
the third quarter of 2001.
For the nine months ended September 30, 2002 and 2001 return on
average assets was 1.30% and 1.10% respectively. Return on
average equity was 12.77% in 2002 and 11.17% in 2001.
Net Interest Income
- -------------------
The principal source of earnings for the Company is net interest
income. Net interest income is the difference between interest
and fees generated by earning assets and interest expense paid to
fund them. Net interest income, on a fully tax equivalent basis,
increased $704 thousand, or 13.43%, for the third quarter of 2002
over 2001. Average earning assets increased 8.16% in the third
quarter of 2002 from 2001.
For the nine months ended September 30, 2002 net interest income
on a fully tax equivalent basis increased $2.47 million, or
16.61%, over the comparable period in 2001. Comparing the first
nine months of 2002 to 2001, average loans increased $30.18
million or 9.19% while investment securities increased $4.82
million or 3.88%. Average earning assets increased 7.14% and the
net interest yield increased from 4.23% in 2001 to 4.61% in 2002.
Interest expense decreased $956 thousand or 24.15% in the third
quarter of 2002 from the third quarter of 2001. Interest bearing
liabilities increased $24.57 million or 6.36 % in the third
quarter of 2002 over the same period in 2001. The cost of
funding those liabilities decreased 118 basis points from 2001.
For the nine months ended September 30, 2002 interest expense
decreased $3.54 million, or 27.83% over the same period in 2001.
Page 9 shows an analysis of average earning assets, interest
bearing liabilities and rates and yields.
8
<page>
<table>
<caption>
- ----------------------------------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION
NET INTEREST INCOME ANALYSIS For the quarter ended September 30,
(Fully taxable equivalent basis) * 2002 2001
- ----------------------------------------------------------------------------------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Dollars in thousands Balance Expense Paid Balance Expense Paid
- ----------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
Loans (net of unearned income)** $370,199 $ 6,952 7.51% $335,114 $ 7,007 8.36%
Investment securities:
Taxable 79,066 1,066 5.39% 77,019 1,164 6.05%
Tax-exempt 48,737 855 7.01% 51,624 914 7.08%
-------- ------- -------- -------
Total investment securities 127,803 1,921 6.01% 128,643 2,078 6.46%
Federal funds sold 18,025 75 1.66% 13,361 115 3.44%
-------- ------- -------- -------
Total earning assets $516,027 $8,948 6.94% $477,118 $ 9,200 7.71%
======== ======= ======== =======
Time and savings deposits:
Interest-bearing transaction accounts $ 7,635 $ 11 0.58% $ 6,664 $ 24 1.44%
Money market deposit accounts 111,642 316 1.13% 102,212 485 1.90%
Savings accounts 32,720 80 0.98% 29,193 110 1.51%
Certificates of deposit, $100,000 or more 55,445 491 3.54% 50,363 675 5.36%
Other certificates of deposit 147,300 1,559 4.23% 143,893 2,048 5.69%
-------- ------- -------- -------
Total time and savings deposits 354,742 2,457 2.77% 332,325 3,342 4.02%
Federal funds purchased and securities sold
under agreement to repurchase 24,127 100 1.66% 26,937 212 3.15%
Federal Home Loan Bank advances 29,785 437 5.87% 25,000 388 6.21%
Other short term borrowings 2,151 8 1.49% 1,972 16 3.25%
-------- ------- -------- -------
Total interest bearing liabilities. $410,805 3,002 2.92% $386,234 3,958 4.10%
Net interest income/yield $ 5,946 4.61% $ 5,242 4.39%
======= ===== ======= =====
- ----------------------------------------------------------------------------------------------------------
For the nine months ended September 30,
2002 2001
- ----------------------------------------------------------------------------------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Dollars in thousands Balance Expense Paid Balance Expense Paid
- ----------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
Loans (net of unearned income)** $358,573 $20,411 7.59% $328,393 $20,924 8.50%
Investment securities:
Taxable 79,746 3,235 5.41% 71,898 3,286 6.09%
Tax-exempt 49,313 2,670 7.22% 52,337 2,847 7.25%
-------- ------- -------- -------
Total investment securities 129,059 5,905 6.10% 124,235 6,133 6.58%
Federal funds sold 13,332 166 1.66% 14,957 495 4.41%
-------- ------- -------- -------
Total earning assets $500,964 $26,482 7.05% $467,585 $27,552 7.86%
======== ======= ======== =======
Time and savings deposits:
Interest-bearing transaction accounts $ 7,543 $ 34 0.60% $ 6,305 $ 82 1.73%
Money market deposit accounts 109,084 966 1.18% 99,334 1,803 2.42%
Savings accounts 31,592 234 0.99% 28,659 456 2.12%
Certificates of deposit, $100,000 or more 54,884 1,532 3.72% 48,964 2,064 5.62%
Other certificates of deposit 142,169 4,880 4.58% 143,124 6,334 5.90%
-------- ------- -------- -------
Total time and savings deposits 345,272 7,646 2.95% 326,386 10,739 4.39%
Federal funds purchased and securities sold
under agreement to repurchase 24,182 299 1.65% 26,031 755 3.87%
Federal Home Loan Bank advances 26,595 1,200 6.02% 25,000 1,151 6.14%
Other short term borrowings 2,066 23 1.48% 1,953 59 4.03%
-------- ------- -------- -------
Total interest bearing liabilities $398,115 9,168 3.07% $379,370 12,704 4.46%
Net interest income/yield $17,314 4.61% $14,848 4.23%
======= ===== ======= =====
</table>
* Tax equivalent yields based on 34% tax rate.
** Nonaccrual loans are included in the average
loan balances and income on such loans is
recognized on a cash basis.
9
<page>
Provision/Allowance for Loan Losses
- -----------------------------------
The provision for loan losses is a charge against earnings
necessary to maintain the allowance for loan losses at a level
consistent with management's evaluation of the portfolio.
The provision for loan losses was $1.30 million for the first
nine months of 2002, up from $800 thousand in the comparable
period in 2001. Loans charged off (net of recoveries) were $655
thousand compared with loans charged off (net of recoveries) of
$756 thousand in the first nine months of 2001. On an annualized
basis net loan charge-offs were 0.23% of total loans for the
first three quarters of 2002 compared with 0.30% for the same
period in 2001.
On September 30, 2002 nonperforming assets totaled $2.11 million
compared with $1.28 million on September 30, 2001. The September
2002 total consisted of $1.33 million in foreclosed real estate,
$165 thousand in former branch sites now listed for sale, and
$611 thousand in nonaccrual loans. The September 2001 total
consisted of $680 thousand in foreclosed real estate, $165
thousand in a former branch site listed for sale and $437
thousand in nonaccrual loans. Loans still accruing interest but
past due 90 days or more increased to $546 thousand as of
September 30, 2002 compared with $214 thousand as of September
30, 2001.
The allowance for loan losses on September 30, 2002 was $4.54
million compared with $3.69 million on September 30, 2001. It
represented a multiple of 2.2 times nonperforming assets and 7.4
times nonperforming loans. The allowance for loan losses was
1.22% and 1.09% of loans on September 30, 2002 and 2001
respectively.
Other Income
- ------------
For the third quarter of 2002 other income increased $43
thousand, or 2.48%, and for the nine months ended September 30,
2002 other income increased $468 thousand or 9.70%. In both
periods, the increase in income is attributed to increases in
other service charges, commissions and fees and mortgage
brokerage income. The increase in other income was lower than
the previous year due to a decrease in income from fiduciary
activities.
Other Expenses
- --------------
For the third quarter of 2002 other expenses increased $299
thousand or 7.05% over the third quarter of 2001. For the nine
months ending September 2002 other expenses increased $992
thousand or 7.96% over the same period in 2001. For the nine
months ended September 30, 2002, salaries and employee benefits
increased $659 thousand or 8.86%. Occupancy expenses increased
$23 thousand or 2.72%. Other operating expenses increased $307
thousand or 10.36% as a result of increases in other loan
expense, loss on disposal of premises and equipment, employee
development and data processing expenses.
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Assets
- ------
At September 30, 2002 total assets were $562.12 million, up 8.36%
from $518.76 million at December 31, 2001. Total loans grew
$26.39 million or 7.62%.
Investment securities and federal funds sold increased by $14.42
million, or 10.23%, in 2002. Bank owned life insurance increased
$5.95 million due to the purchase of policies in 2002. Total
deposits increased $29.67 million, or 7.20% in 2002 and demand
note balances to the United States Treasury increased $5.63
million from year-end 2001.
Capital Ratios
- --------------
The Company's capital position remains strong as evidenced by the
regulatory capital measurements. At September 30, 2002 the Tier
I capital ratio was 13.96%, the total capital ratio was 15.06%
and the leverage ratio was 10.04%. These ratios were all well
above the regulatory minimum levels of 4.00%, 8.00%, and 3.00%,
respectively.
Capital Resources
- -----------------
During the third quarter, the Company sold a vacant branch site
that was transferred to OREO in the first quarter of 2002. Land
was purchased in Chesapeake for an additional branch location.
The Company continues to expand the implementation of the new
imaging system by moving forward with the use of imaged signature
cards in 2002.
The Company believes that it has adequate internal and external
resources available to fund its capital expenditure requirements.
Liquidity
- ---------
Liquidity is the ability of the Company to meet present and
future obligations to depositors and borrowers. The Company
continued to experience moderate deposit growth in the third
quarter of 2002. Loan growth for the first nine months of 2002
exceeded targeted projections. Management considers the
liquidity of the Company to be adequate. The Company continues
to monitor and seek investment opportunities in an environment of
falling interest rates.
Effects of Inflation
- --------------------
Management believes that the key to achieving satisfactory
performance is its ability to maintain or improve its net
interest margin and to generate additional fee income. The
Company's policy of investing in and funding with interest
sensitive assets and liabilities is intended to reduce the risks
inherent in a volatile inflationary economy.
Critical Accounting Policies
- ----------------------------
The Company's consolidated financial statements and accompanying
notes have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis. The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and
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Critical Accounting Policies (con't)
- ----------------------------
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting periods.
The Company continually evaluates the accounting policies and
estimates it uses to prepare the consolidated financial
statements. In general, management's estimates are based on
historical experience, on information from third party
professionals and on various other assumptions that are believed
to be reasonable under the facts and circumstances. Actual
results could differ from those estimates made by management.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses is an estimate of the losses that
may be sustained in our loan portfolio. The allowance is based
on two basic principles of accounting. (1) Statement of
Financial Accounting Standards (SFAS) No. 5 "Accounting for
Contingencies", which requires that losses be accrued when they
are probable of occurring and estimable and (2) SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan", which
requires that losses be accrued based on the differences between
that value of collateral, present value of future cash flows or
values that are observable in the secondary market and the loan
balance.
In evaluating the adequacy of the allowance for loan losses, the
Company has divided the loan portfolio into six pools of loans.
Allocation percentages are applied to the loan pools utilizing
the following factors:
1. economic trends and conditions
2. trends in volume and terms of loans
3. delinquency and non-accruals
4. lending policies
5. lending management and staff
6. concentrations of credit
The Company also maintains a four-year loss experience history on
each category of loan. Using the six factors listed above,
management can modify the allocation from the four-year
historical average.
Changes in the financial condition of individual borrowers, in
economic conditions, in historical loss experience and in the
conditions of the various markets in which collateral may be sold
all affect the required level of the allowance for loan losses
and the associated provision for loan losses.
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Deferred Loan Fees / Costs
- --------------------------
As part of the lending process, the Company receives fees from
borrowers or potential borrowers related to loans underwritten.
All origination fees received in the origination of a loan that
are not pass-through fees, and certain direct origination costs
are deferred and amortized over the life of the loan.
Other Real Estate Owned
- -----------------------
The Company records Other Real Estate Owned on the financial
statement at fair value. Fair value is typically determined
based on appraisals by third parties, less estimated costs to
sell. The Company monitors the fair value of Other Real Estate
Owned and adjusts the carrying value on the financial statement
accordingly.
Income Taxes
- ------------
The Company recognizes expense for federal income and state bank
franchise taxes payable as well as deferred federal income taxes
for estimated future tax effects of temporary differences between
the tax basis of assets and liabilities and amounts reported in
the consolidated financial statements. Income and franchise tax
returns are subject to audit by the IRS and state taxing
authorities. Income and franchise tax expense for current and
prior periods is subject to adjustment based on the outcome of
such audits. The Company believes it has adequately provided for
all taxes payable.
13
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Sensitivity
- --------------------
Old Point Financial Corporation does not have any risk sensitive
instruments entered into for trading purposes.
Trading market risk is the risk to net income from changes in the
fair values of assets and liabilities that are marked-to-market
through the income statement. The Company does not carry a
trading portfolio and is currently not exposed to trading risk.
Old Point Financial Corporation does have risk sensitive
instruments entered into for other than trading purposes. Based
on scheduled maturities, the Company was liability sensitive as
of September 30, 2002. There were $121 million more in
liabilities than assets subject to repricing within three months.
As of December 31, 2001, the Company had $125 million more in
liabilities than assets subject to repricing within three months.
When the company is liability sensitive, net interest income
should improve if interest rates fall since liabilities will
reprice faster than assets. Conversely, if interest rates rise,
net interest income should decline. It should be noted, however,
that deposits totaling $150.06 million; which consist of interest
checking, money market, and savings accounts; are less interest
sensitive than other market driven deposits. In a rising rate
environment these deposit rates have historically lagged behind
the changes in earning asset rates, thus mitigating somewhat the
impact from the liability sensitivity position.
Market risk is the risk of loss due to changes in instrument
values or earnings variations caused by changes in interest
rates, commodity prices and market variables such as equity price
risk. Old Point Financial Corporation's equity price risk is
immaterial and the company's primary exposure is to interest rate
risk.
Non-trading market risk is the risk to net income from changes in
interest rates on asset and liabilities, other than trading. The
risk arises through the potential mismatch resulting from timing
differences in repricing of loans and deposits. Old Point
Financial Corporation monitors this risk by reviewing the timing
differences and using a portfolio rate shock model that projects
various changes in interest income under a changing rate
environment of up to plus or minus 300 basis points. The rate
shock model reveals that a 100 basis point drop in rates would
cause approximately a 1.75% decrease in net income. The rate
shock model reveals that a 100 basis point rise in rates would
cause approximately a 1.06% increase in net income and that a 200
basis point rise in rates would cause approximately a 1.86%
increase in net income at September 30, 2002.
14
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Item 4. DISCLOSURE CONTROLS AND PROCEDURES
Within the 90 day period prior to filing of this report, an
evaluation was carried out under the supervision and with the
participation of Old Point Financial Corporation's management,
including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and
procedures (as defined in Rule [13a-14(c) /15d-14(c)] under the
Securities Exchange Act of 1934). Based on their evaluation, our
Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures
are, to the best of their knowledge, effective to ensure that
information required to be disclosed by Old Point Financial
Corporation in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange
Commission rules and forms. Subsequent to the date of their
evaluation, the Company did not make any significant changes in,
nor take any corrective actions regarding its internal controls
or other factors that could significantly affect these controls.
15
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PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 from
the Company's Chief Executive Officer
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 from
the Company's Chief Financial Officer
(b) Two reports on Form 8-K were filed during the third quarter
of 2002.
September 30, 2002 a Form 8-K was filed
announcing the resignation of Frank E. Continetti
as President and CEO of Old Point Trust &
Financial Services, N.A.
October 9, 2002 a Form 8-K was filed to announce
the election of Eugene M. Jordan, II to the Board
of Directors of Old Point Trust & Financial
Services, N.A. in advance of his appointment to
the position of President and CEO. The Form 8-K
also announced the declaration of a 50% stock
dividend.
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SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OLD POINT FINANCIAL CORPORATION
November 13, 2002
By: /s/Louis G. Morris
------------------
Louis G. Morris
Executive Vice President and CFO
By: /s/Laurie D. Grabow
-------------------
Laurie D. Grabow
Senior Vice President
Principal Financial and Accounting Officer