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 June 30, 2003
[ ] 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 July 31, 2003.
Class Outstanding at July 31, 2003
----- ----------------------------
Common Stock, $5.00 par value 3,964,493 shares
<page>
OLD POINT FINANCIAL CORPORATION
FORM 10-Q
INDEX
-----
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements............................................1
Consolidated Balance Sheets
June 30, 2003 and December 31, 2002.......................1
Consolidated Statement of Earnings
Three months ended June 30, 2003 and 2002.................2
Six months ended June 30, 2003 and 2002...................2
Consolidated Statement of Cash Flows
Six months ended June 30, 2003 and 2002...................3
Consolidated Statements of Changes in Stockholders' Equity
Six months ended June 30, 2003 and 2002...................4
Notes to Consolidated Financial Statements.........................5
Parent Only Balance Sheets
June 30, 2003 and December 31, 2002................7
Parent Only Statement of Earnings
Three months ended June 30, 2003 and 2002..........7
Six months ended June 30, 2003 and 2002............7
Parent Only Statement of Cash Flows
Six months ended June 30, 2003 and 2002............8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................9
Analysis of Changes in Net Interest Income...............10
Item 3. Quantitative and Qualitative Disclosures about Market Risk.....15
Item 4. Disclosure Controls and Procedures.............................16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...............................17
(i)
<page>
<table>
<caption>
- ----------------------------------------------------------------------------------------
Unaudited June 30, December 31,
Consolidated Balance Sheets 2003 2002
- ----------------------------------------------------------------------------------------
<s> <c> <c>
Assets
Cash and due from banks................................... $ 17,434,692 $ 14,180,253
Interest bearing balances due from banks.................. 250,558 256,597
------------ ------------
Total cash due from banks.............................. $ 17,685,250 $ 14,436,850
Investments:
Securities available for sale, at market................ 143,738,592 128,487,826
Securities to be held to maturity....................... 14,664,889 27,515,549
Trading account securities................................ - -
Federal funds sold........................................ 12,459,704 8,709,544
Loans, total ............................................. 391,247,098 377,961,364
Less reserve for loan losses.......................... 4,877,388 4,564,931
Net loans......................................... 386,369,710 373,396,433
Bank premises and equipment............................... 13,303,110 13,280,017
Other real estate owned................................... 695,686 830,091
Other assets.............................................. 10,944,914 9,966,279
------------ ------------
Total assets......................................... $599,861,855 $576,622,589
============ ============
Liabilities
Noninterest-bearing deposits.............................. $101,718,382 $ 90,620,836
Savings deposits.......................................... 161,798,743 159,077,310
Time deposits............................................. 206,601,174 204,353,854
------------ ------------
Total deposits......................................... 470,118,299 454,052,000
Federal funds purchased and securities sold under
agreement to repurchase............................... 19,144,007 21,283,237
Interest-bearing demand notes issued to the United States
Treasury and other liabilities for borrowed money...... 6,000,000 6,000,000
Federal Home Loan Bank.................................... 40,000,000 35,000,000
Other liabilities......................................... 2,449,043 2,171,878
------------ ------------
Total liabilities...................................... 537,711,349 518,507,115
Stockholders' Equity
Common stock, $5.00 par value............................. $ 19,822,465 $ 19,683,600
2003 2002
Shares authorized.... 10,000,000 10,000,000
Shares outstanding... 3,964,493 3,936,720
Surplus................................................... 12,096,500 11,165,496
Undivided profits......................................... 27,744,930 25,597,568
Accumulated other comprehensive income (loss)............. 2,486,611 1,668,810
------------ ------------
Total stockholders' equity............................ 62,150,506 58,115,474
------------ ------------
Total liabilities and stockholders' equity............ $599,861,855 $576,622,589
============ ============
</table>
1
<page>
<table>
<caption>
- -----------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
Consolidated Statements of Earnings June 30, June 30,
2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Interest Income
Interest and fees on loans $ 6,746,151 $ 6,767,573 $13,432,630 $13,423,489
Interest on federal funds sold 32,705 48,621 93,423 90,968
Interest on securities:
Interest on United States Treasury securities (taxable) 20,971 24,016 44,869 47,125
Interest on obligations of other
United States Government agencies (taxable) 981,973 982,757 1,991,840 2,037,707
Interest on obligations of states and
political subdivisions (tax exempt) 552,978 586,398 1,120,309 1,181,988
Interest on obligations of states and
political subdivisions (taxable) 18,661 18,977 37,452 38,326
Interest on trading account securities - - - -
Dividends and interest on all other securities 34,911 30,204 62,313 61,814
----------- ----------- ----------- -----------
Total interest on securities 1,609,494 1,642,352 3,256,783 3,366,960
Trading account securities - - - -
----------- ----------- ----------- -----------
Total interest income 8,388,350 8,458,546 16,782,836 16,881,417
Interest Expense
Interest on savings deposits 276,970 424,135 584,673 826,557
Interest on time deposits 1,649,861 2,112,911 3,400,785 4,361,547
Interest on federal funds purchased and securities
sold under agreement to repurchase 55,971 96,065 119,128 199,278
Interest on Federal Home Loan Bank advances 506,188 383,590 999,306 762,965
Interest on demand notes (note balances) issued to the
United States Treasury and on other borrowed money 2,908 4,989 8,346 15,295
----------- ----------- ----------- -----------
Total interest expense 2,491,898 3,021,690 5,112,238 6,165,642
Net interest income 5,896,452 5,436,856 11,670,598 10,715,775
Provision for loan losses 300,000 400,000 600,000 700,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 5,596,452 5,036,856 11,070,598 10,015,775
Other Income
Income from fiduciary activities 517,445 568,528 1,068,981 1,097,472
Service charges on deposit accounts 730,403 731,438 1,444,318 1,429,058
Other service charges, commissions and fees 365,948 291,634 676,390 568,640
Other operating income 272,642 272,426 492,610 405,339
Security gains (losses) 23,508 4,183 29,089 9,398
Trading account income - - - -
----------- ----------- ----------- -----------
Total other income 1,909,946 1,868,209 3,711,388 3,509,907
Other Expenses
Salaries and employee benefits 2,982,300 2,691,893 5,903,988 5,305,724
Occupancy expense of Bank premises 304,506 270,197 610,108 569,293
Furniture and equipment expense 412,468 414,381 821,348 820,655
Other operating expenses 1,226,637 1,151,689 2,257,027 2,223,301
----------- ----------- ----------- -----------
Total other expenses 4,925,911 4,528,160 9,592,471 8,918,973
----------- ----------- ----------- -----------
Income before taxes 2,580,487 2,376,905 5,189,515 4,606,709
Applicable income taxes 640,015 564,596 1,296,048 1,136,840
----------- ----------- ----------- -----------
Net income $ 1,940,472 $ 1,812,309 $ 3,893,467 $ 3,469,869
=========== =========== =========== ===========
Per Share
Based on weighted average number of
common shares outstanding 3,955,511 3,906,603 3,948,406 3,904,821
Basic Earnings per Share $ 0.49 $ 0.46 $ 0.99 $ 0.89
Diluted Earnings per Share $ 0.47 $ 0.45 $ 0.96 $ 0.87
</table>
2
<page>
<table>
<caption>
- -----------------------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION Six Months Ended
Consolidated Statements of Cash Flows June 30,
(Unaudited) 2003 2002
- -----------------------------------------------------------------------------------------------
<s> <c> <c>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................................... $ 3,893,467 $ 3,469,869
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................. 773,917 806,188
Provision for loan losses..................................... 600,000 700,000
(Gains) loss on sale of investment securities, net............ (29,089) (9,398)
Net amortization & accretion of securities ................... 22,265 38,774
Net (increase) decrease in trading account.................... - -
Loss on disposal of equipment................................. 165 90,669
(Increase) decrease in other real estate owned................ (514,687) 13,000
(Increase) decrease in other assets
(net of tax effect of FASB 115 adjustment)................ (1,399,926) (6,370,804)
Increase (decrease) in other liabilities...................... 277,165 431,670
------------ ------------
Net cash provided by operating activities................... 3,623,276 (830,032)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities ...................................... (71,843,410) (15,533,221)
Proceeds from maturities & calls of securities ............... 69,029,500 19,137,900
Proceeds from sales of available - for - sale securities...... 1,659,720 1,333,189
Proceeds from sales of held - to - maturity securities........ - -
Loans made to customers....................................... (130,937,410) (128,177,402)
Principal payments received on loans.......................... 117,364,134 110,964,932
Proceeds from sales of other real estate owned................ 649,092 158,229
Purchases of premises and equipment........................... (797,175) (529,960)
(Increase) decrease in federal funds sold..................... (3,750,160) (256,959)
------------ ------------
Net cash provided by (used in) investing activities......... (18,625,710) (12,903,292)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in non-interest bearing deposits.......... 11,097,546 2,110,788
Increase (decrease) in savings deposits....................... 2,721,433 7,361,970
Proceeds from the sale of certificates of deposit............. 43,675,313 50,120,285
Payments for maturing certificates of deposit................. (41,427,993) (43,922,857)
Increase (decrease) in federal funds purchased &
repurchase agreements........................................ (2,139,230) (7,616,424)
Increase (decrease) in Federal Home Loan Bank advances........ 5,000,000 -
Increase (decrease) in other borrowed money................... - 4,375,836
Proceeds from issuance of common stock........................ 272,324 193,341
Dividends paid................................................ (948,560) (833,093)
------------ ------------
Net cash provided by financing activities................... 18,250,833 11,789,846
Net increase (decrease) in cash and due from banks.......... 3,248,400 (1,943,478)
Cash and due from banks at beginning of period.............. 14,436,850 14,785,865
------------ ------------
Cash and due from banks at end of period.................... $ 17,685,250 $ 12,842,387
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest.................................................... $ 5,205,513 $ 6,396,365
Income taxes................................................ 1,370,000 1,390,000
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Unrealized gain (loss) on investment securities, net of tax... 817,801 1,177,853
Additional minimum liability related to pension............... - -
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 SIX MONTHS ENDED JUNE 30, 2003
Balance at beginning of period.......... 3,936,720 $ 19,683,600 $ 11,165,496 $ 25,597,568 $ 1,668,810 $ 58,115,474
Comprehensive Income
Net income............................ - - - 3,893,467 - 3,893,467
Increase (decrease) in unrealized
gain on investment securities......... - - - - 817,801 817,801
Minimum pension liability adjustment.. - - - - - -
--------- ------------ ------------ -------------- ------------ ------------
Total Comprehensive Income 3,893,467 817,801 4,711,268
Sale of common stock.................... 27,773 138,865 931,004 (797,545) - 272,324
Cash dividends............... .......... - - - (948,560) - (948,560)
--------- ------------ ------------ -------------- ------------ ------------
Balance at end of period................ 3,964,493 $ 19,822,465 $ 12,096,500 $ 27,744,930 $ 2,486,611 $ 62,150,506
FOR SIX MONTHS ENDED JUNE 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............................ - - - 3,469,869 - 3,469,869
Increase (decrease) in unrealized
gain on investment securities - - - - 1,177,853 1,177,853
Minimum pension liability adjustment.. - - - - - -
--------- ------------ ------------ -------------- ------------ ------------
Total Comprehensive Income 3,469,869 1,177,853 4,647,722
Sale of common stock.................... 10,278 51,390 283,065 (141,114) - 193,341
Cash dividends............... .......... - - - (833,093) - (833,093)
--------- ------------ ------------ -------------- ------------ ------------
Balance at end of period................ 2,609,855 $ 13,049,275 $ 10,738,126 $ 29,836,570 $ 1,296,070 $ 54,920,041
</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 2002
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.
4. At June 30, 2003 the Company had two stock option plans. The
Company has elected to continue to apply the provisions of
APB No. 25 and related interpretations in accounting for
stock options and to continue to provide the pro forma
disclosure requirements of SFAS No. 123, as amended by SFAS
No. 148, "Accounting For Stock-Based Compensation - Transition
and Disclosure", in the table below. Under APB No. 25,
compensation cost for stock options is measured as the excess,
if any, of the fair market value of the Company's common stock
at the date of grant over the amount the employee or director
must pay to acquire the stock. Because the Company's stock
option plans provide for the issuance of stock options at a price
of no less than the fair market value at the date of the grant, no
compensation cost is required to be recognized for the Company's
stock option plans.
Had compensation costs for the stock option plans been determined
based upon the fair value at the date of grant consistent with
SFAS No. 123, net income and earnings per share would have been
reduced to the pro forma amounts indicated in the following table
on page 6.
5
<page>
<table>
<caption>
Old Point Financial Corporation
Pro forma disclosure SFAS No. 123 as amended by SFAS No. 148
- ----------------------------------------------------------------------
Six Months Ended
June 30,
2003 2002
---- ----
<s> <c> <c>
Net income:
As reported $3,893,467 $ 3,469,869
Fair value-based expense, net of tax (197,000) (136,000)
---------- -----------
Pro forma $3,696,467 $ 3,333,869
========== ===========
Basic earnings per share:
As reported $ 0.99 $ 0.89
Pro forma $ 0.94 $ 0.86
Diluted earnings per share:
As reported $ 0.96 $ 0.87
Pro forma $ 0.91 $ 0.84
</table>
6
<page>
<table>
<caption>
- ----------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION
Parent only Balance Sheets June 30, December 31,
(Unaudited) 2003 2002
- ----------------------------------------------------------------------------------
<s> <c> <c>
Assets
Cash in bank........................................ $ 329,674 $ 247,784
Investment Securities............................... 2,311,600 2,215,000
Total Loans......................................... - -
Investment in Subsidiaries.......................... 59,402,588 55,637,412
Equipment........................................... - -
Other assets........................................ 106,644 15,278
------------ ------------
Total Assets........................................ $ 62,150,506 $ 58,115,474
============ ============
Liabilities and Stockholders' Equity
Total Liabilities................................... $ - $ -
Stockholders' Equity................................ 62,150,506 58,115,474
------------ ------------
Total Liabilities & Stockholders' Equity............ $ 62,150,506 $ 58,115,474
============ ============
<caption>
- -------------------------------------------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION Three Months Ended: Six Months Ended:
Parent only Income Statements June 30, June 30,
(Unaudited) 2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Income
Cash dividends from Subsidiary...................... $ 500,000 $ 450,000 $ 1,000,000 $ 900,000
Interest and fees on loans.......................... - - - -
Interest income from investment securities.......... 25,214 22,690 51,822 45,378
Gains (losses) from sale of investment securities... - - - -
Other income........................................ 36,000 36,000 72,000 72,000
------------ ------------ -------------- -------------
Total Income........................................ 561,214 508,690 1,123,822 1,017,378
Expenses
Salaries and employee benefits...................... 72,287 67,777 147,329 136,752
Other expenses...................................... 38,614 23,742 68,967 47,454
------------ ------------ -------------- -------------
Total Expenses...................................... 110,901 91,519 216,296 184,206
------------ ------------ -------------- -------------
Income before taxes & undistributed
net income of subsidiaries...................... 450,313 417,171 907,526 833,172
Income tax.......................................... (22,585) (17,204) (42,815) (34,960)
------------ ------------ -------------- -------------
Net income before undistributed
net income of subsidiaries........................ 472,898 434,375 950,341 868,132
Undistributed net income of subsidiaries............ 1,467,574 1,377,934 2,943,126 2,601,737
------------ ------------ -------------- -------------
Net Income.......................................... $ 1,940,472 $ 1,812,309 $ 3,893,467 $ 3,469,869
============ ============= ============= =============
</table>
7
<page>
<table>
<caption>
- -----------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION Six Months Ended:
Parent only Statements of Cash Flows June 30,
(Unaudited) 2003 2002
- -----------------------------------------------------------------------------------
<s> <c> <c>
Cash Flows from Operating Activities:
Net Income.......................................... $ 3,893,467 $ 3,469,869
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed income of subsidiary.... (2,943,126) (2,601,738)
Depreciation...................................... - -
Gains(losses) on sale of securities [net]....... - -
(Increase) Decrease in other assets............. (92,215) (40,264)
Increase (decrease) in other liabilities........ - -
------------ -------------
Net cash provided by operating activities........... 858,126 827,867
Cash flows from investing activities:
(Increase)decrease in investment securities......... (100,000) -
Investment in subsidiaries .................. - (300,000)
Sale of equipment................................... - -
Repayment of loans by customers..................... - -
------------ ------------
Net cash provided by investing activities........... (100,000) (300,000)
Cash flows from financing activities:
Proceeds from issuance of common stock.............. 272,324 193,342
Dividends paid...................................... (948,560) (833,093)
------------ ------------
Net cash provided by financing activities........... (676,236) (639,751)
Net increase (decrease) in cash & due from banks.... 81,890 (111,884)
Cash & due from banks at beginning of period........ 247,784 275,795
------------ ------------
Cash & due from banks at end of period.............. $ 329,674 $ 163,911
============ ============
</table>
8
<page>
Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- --------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Earnings Summary
- ----------------
Net income for the second quarter of 2003 increased 7.07% to
$1.94 million from $1.81 million for the comparable period in
2002. Basic earnings per share were $0.49 in the second quarter
of 2003 compared with $0.46 in 2002.
For the six months ended June 30, 2003 net income increased
12.21% to $3.89 million from $3.47 million in 2002. Basic
earnings per share were $0.99 for the first six months of 2003
compared with $0.89 in 2002.
Return on average assets was 1.31% for the second quarter of 2003
and 1.37% for the comparable period in 2002. Return on average
equity was 12.62% for the second quarter of 2003 and 13.42% for
the second quarter of 2002.
For the six months ended June 30, 2003 and 2002 return on average
assets was 1.33% and 1.32% respectively. Return on average
equity was 12.87% in 2003 and 13.02% in 2002.
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 $408 thousand, or 7.04%, for the second quarter of
2003 over 2002. Average earning assets increased 11.47% in the
second quarter of 2003 from 2002.
For the six months ended June 30, 2003 net interest income on a
fully tax equivalent basis increased $921 thousand, or 8.10%,
over the comparable period in 2002. Comparing the first six
months of 2003 to 2002, average loans increased $30.56 million or
8.66% while investment securities increased $19.81 million or
15.39%. Average earning assets increased 11.32% and the net
interest yield decreased from 4.62% in 2002 to 4.48% in 2003.
Interest expense decreased $532 thousand or 17.60% in the second
quarter of 2003 from the second quarter of 2002. Interest bearing
liabilities increased $37.65 million or 9.56 % in the second
quarter of 2003 over the same period in 2002. The cost of
funding those liabilities decreased 19 basis points from 2002.
For the six months ended June 30, 2003 interest expense decreased
$1.06 million, or 17.11% over the same period in 2002.
Page 10 shows an analysis of average earning assets, interest
bearing liabilities and rates and yields.
9
<page>
<table>
<caption>
- ------------------------------------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION
NET INTEREST INCOME ANALYSIS For the quarter ended June 30,
(Fully taxable equivalent basis) * 2003 2002
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)** $ 387,816 $ 6,767 6.98% $ 356,130 $ 6,785 7.62%
Investment securities:
Taxable 104,857 1,057 4.03% 77,243 1,072 5.55%
Tax-exempt 46,737 838 7.17% 49,189 912 7.42%
--------- ------- -------- -------
Total investment securities 151,594 1,895 5.00% 126,432 1,984 6.28%
Federal funds sold 11,498 32 1.11% 11,675 49 1.68%
--------- ------- -------- -------
Total earning assets $ 550,908 $ 8,694 6.31% $494,237 $ 8,818 7.14%
========= ======= ======== =======
Time and savings deposits:
Interest-bearing transaction accounts $ 9,894 $ 10 0.40% $ 7,768 $ 13 0.67%
Money market deposit accounts 116,818 232 0.79% 109,774 333 1.21%
Savings accounts 35,769 34 0.38% 31,724 79 1.00%
Certificates of deposit, $100,000 or more 58,329 427 2.93% 57,910 517 3.57%
Other certificates of deposit 149,552 1,223 3.27% 137,307 1,596 4.65%
--------- ------- -------- -------
Total time and savings deposits 370,362 1,926 2.08% 344,483 2,538 2.95%
Federal funds purchased and securities sold
under agreement to repurchase 19,691 56 1.14% 23,052 96 1.67%
Federal Home Loan Bank advances 40,000 506 5.06% 25,000 384 6.14%
Other short term borrowings 1,407 3 0.85% 1,273 5 1.57%
--------- ------- -------- -------
Total interest bearing liabilities. $ 431,460 $ 2,491 2.31% $393,808 $ 3,023 3.07%
Net interest income/yield $ 6,203 4.50% $ 5,795 4.69%
======= ===== ======= =====
<caption>
- ------------------------------------------------------------------------------------------------------------
For the six months ended June 30,
2003 2002
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)** $ 383,323 $13,473 7.03% $ 352,760 $13,459 7.63%
Investment securities:
Taxable 101,174 2,137 4.22% 81,342 2,169 5.33%
Tax-exempt 47,325 1,697 7.17% 49,601 1,815 7.32%
--------- ------- -------- -------
Total investment securities 148,499 3,834 5.16% 130,943 3,984 6.09%
Federal funds sold 16,375 93 1.14% 10,985 91 1.66%
--------- ------- -------- -------
Total earning assets $ 548,197 $17,400 6.35% $ 494,688 $17,534 7.09%
========= ======= ========= =======
Time and savings deposits:
Interest-bearing transaction accounts $ 9,330 $ 20 0.43% $ 7,497 $ 23 0.61%
Money market deposit accounts 117,425 455 0.77% 107,805 650 1.21%
Savings accounts 35,147 109 0.62% 31,028 154 0.99%
Certificates of deposit, $100,000 or more 57,634 874 3.03% 54,621 1,041 3.81%
Other certificates of deposit 149,869 2,527 3.37% 139,586 3,321 4.76%
--------- ------- -------- -------
Total time and savings deposits 369,405 3,985 2.16% 340,537 5,189 3.05%
Federal funds purchased and securities sold
under agreement to repurchase 21,345 119 1.12% 24,210 199 1.64%
Federal Home Loan Bank advance 39,382 999 5.07% 25,000 763 6.10%
Other short term borrowings 1,601 8 1.00% 2,024 15 1.48%
--------- ------- -------- -------
Total interest bearing liabilities $ 431,733 $ 5,111 2.37% $391,771 $ 6,166 3.15%
Net interest income/yield $12,289 4.48% $11,368 4.60%
======= ===== ======= =====
* 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.
</table>
10
<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 $600 thousand for the first six
months of 2003, down from $700 thousand in the comparable period in
2002. Loans charged off (net of recoveries) were $288 thousand
compared with loans charged off (net of recoveries) of $385
thousand in the first six months of 2002. On an annualized basis
net loan charge-offs were 0.15% of total loans for the first half
of 2003 compared with 0.21% for the same period in 2002.
On June 30, 2003 nonperforming assets totaled $1.48 million
compared with $1.52 million on June 30, 2002. The June 2003 total
consisted of $531 thousand in foreclosed real estate, $165
thousand in a former branch site now listed for sale, and $781
thousand in nonaccrual loans. The June 2002 total consisted of
$667 thousand in foreclosed real estate, $680 thousand in
former branch sites listed for sale and $169 thousand in
nonaccrual loans. Loans still accruing interest but past due 90
days or more decreased to $543 thousand as of June 30, 2003
compared with $647 thousand as of June 30, 2002.
The allowance for loan losses on June 30, 2003 was $4.88 million
compared with $4.21 million on June 30, 2002. It represented a
multiple of 3.30 times nonperforming assets and 6.25 times
nonperforming loans. The allowance for loan losses was 1.25% and
1.16% of loans on June 30, 2003 and 2002 respectively.
Other Income
- ------------
For the second quarter of 2003 other income increased $41.74
million, or 2.23%, and for the six months ended June 30, 2003
other income increased $201 thousand or 5.74% over the same periods
in 2002. In both periods, the increase in income is attributed to
increases in other service charges, commissions and fees, mortgage
brokerage income and bank owned life insurance income.
Other Expenses
- --------------
For the second quarter of 2003 other expenses increased $398
thousand or 8.78% over the second quarter of 2002. For the six
months ending June 2003 other expenses increased $673 thousand or
7.55% over the same period in 2002. For the six months ended
June 30, 2003, salaries and employee benefits increased $598
thousand or 11.28%. Occupancy expenses increased $41 thousand or
7.17%.
Assets
- ------
At June 30, 2003 total assets were $599.86 million, up 4.03% from
$576.63 million at December 31, 2002. Total loans grew $13.29
million or 3.52%.
Investment securities and federal funds sold increased by $6.15
million, or 3.73%, in 2003. Bank owned life insurance increased
$1.35 million due to the purchase of policies in 2003. Total
deposits increased $16.07 million, or 3.54% in 2003. Advances
from the FHLB increased $5.00 million, or 14.29% in 2003.
Securities sold under agreement to repurchase decreased $2.14
million, or 10.05% in 2003.
11
<page>
Capital Ratios
- --------------
The Company's capital position remains strong as evidenced by the
regulatory capital measurements. At June 30, 2003 the Tier I
capital ratio was 13.77%, the total capital ratio was 14.94% and
the leverage ratio was 9.68%. These ratios were all well above
the regulatory minimum levels of 4.00%, 8.00%, and 3.00%,
respectively.
Capital Resources
- -----------------
The Company purchased land in the third quarter of 2002 for an
additional branch location in Chesapeake. Ground breaking for the
new branch began in April 2003. The Company anticipates that the
new Chesapeake branch will open in early September 2003.
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
experienced deposit growth that was slightly above targeted
projections and loan growth that was slightly less than targeted
projections in the first half of 2003. The Company has maintained
liquidity as reflected in the large balance in federal funds sold as
of June 30, 2003. The Company continues to monitor and seek
investment opportunities in the current rate environment.
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 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 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.
12
<page>
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.
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.
13
<page>
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.
14
<page>
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 June 30, 2003. There were $107 million more in liabilities
than assets subject to repricing within three months. As of
December 31, 2002, the Company had $109 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 $161.8 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 2.56% decrease in net income. The rate
shock model reveals that a 100 basis point rise in rates would
cause approximately a 3.67% increase in net income and that a 200
basis point rise in rates would cause approximately a 5.53%
increase in net income at June 30, 2003.
15
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.
16
<page>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
31.1 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 from the Company's
Chief Executive Officer
31.2 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 from the Company's
Chief Financial Officer
32.1 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 from the Company's
Chief Executive Officer
32.2 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 from the Company's
Chief Financial Officer
(b) One report on Form 8-K was filed during the
second quarter of 2003.
April 16, 2003, a Form 8-K, which included a press
release, dated April 14, 2003 announcing earnings
and other financial results for the first quarter
of 2003, which ended March 31, 2003.
17
<page>
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
August 8, 2003
By: /s/Robert F. Shuford
--------------------
Robert F. Shuford
President and Chief Executive Officer
By: /s/Laurie D. Grabow
-------------------
Laurie D. Grabow
Senior Vice President and CFO
18