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, 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
Indicate by check mark whether the registrant is an accelerated
filer (as defined by Rule 12b-2 of the Exchange Act)
Yes No X
State the number of shares outstanding of each of the issuer's
classes of common stock as of October 31, 2003.
Class Outstanding at October 31, 2003
----- -------------------------------
Common Stock, $5.00 par value 3,973,769 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, 2003 and December 31, 2002....................1
Consolidated Statement of Earnings
Three months ended September 30, 2003 and 2002..............2
Nine months ended September 30, 2003 and 2002...............2
Consolidated Statement of Cash Flows
Nine months ended September 30, 2003 and 2002...............3
Consolidated Statements of Changes in Stockholders' Equity
Nine months ended September 30, 2003 and 2002...............4
Notes to Consolidated Financial Statements.........................5
Parent Only Balance Sheets
September 30, 2003 and December 31, 2002.............7
Parent Only Statement of Earnings
Three months ended September 30, 2003 and 2002.......7
Nine months ended September 30, 2003 and 2002........7
Parent Only Statement of Cash Flows
Nine months ended September 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 September 30, December 31,
Consolidated Balance Sheets 2003 2002
- ----------------------------------------------------------------------------------------
<s> <c> <c>
Assets
Cash and due from banks................................... $ 14,132,757 $ 14,180,253
Interest bearing balances due from banks.................. 250,472 256,597
------------ ------------
Total cash due from banks.............................. $ 14,383,229 $ 14,436,850
Investments:
Securities available for sale, at market................ 152,786,403 128,487,826
Securities to be held to maturity....................... 12,714,710 27,515,549
Trading account securities................................ - -
Federal funds sold........................................ 3,699,181 8,709,544
Loans, total ............................................. 390,795,812 377,961,364
Less reserve for loan losses.......................... 4,860,425 4,564,931
------------ ------------
Net loans......................................... 385,935,387 373,396,433
Bank premises and equipment............................... 13,585,049 13,280,017
Other real estate owned................................... 190,500 830,091
Other assets.............................................. 12,761,666 9,966,279
------------ ------------
Total assets......................................... $596,056,125 $576,622,589
============ ============
Liabilities
Noninterest-bearing deposits.............................. $ 98,836,492 $ 90,620,836
Savings deposits.......................................... 167,479,818 159,077,310
Time deposits............................................. 202,481,134 204,353,854
------------ ------------
Total deposits......................................... 468,797,444 454,052,000
Federal funds purchased and securities sold under
agreement to repurchase............................... 22,106,818 21,283,237
Interest-bearing demand notes issued to the United States
Treasury and other liabilities for borrowed money...... 569,447 6,000,000
Federal Home Loan Bank.................................... 40,000,000 35,000,000
Other liabilities......................................... 3,242,471 2,171,878
------------ ------------
Total liabilities...................................... 534,716,180 518,507,115
Stockholders' Equity
Common stock, $5.00 par value............................. $ 19,852,465 $ 19,683,600
2003 2002
Shares authorized.... 10,000,000 10,000,000
Shares outstanding... 3,970,493 3,936,720
Surplus................................................... 12,261,284 11,165,496
Undivided profits......................................... 29,021,743 25,597,568
Accumulated other comprehensive income (loss)............. 204,453 1,668,810
------------ ------------
Total stockholders' equity............................ 61,339,945 58,115,474
------------ ------------
Total liabilities and stockholders' equity............ $596,056,125 $576,622,589
============ ============
</table>
1
<page>
<table>
<caption>
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
Consolidated Statements of Earnings September 30, September 30,
2003 2002 2003 2002
- --------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Interest Income
Interest and fees on loans.................................... $ 6,547,209 $ 6,933,875 $ 19,979,839 $ 20,357,364
Interest on federal funds sold................................ 24,425 74,798 117,848 165,766
Interest on securities:
Interest on United States Treasury securities (taxable)....... 13,519 17,666 58,388 64,791
Interest on obligations of other
United States Government agencies (taxable)................. 987,056 984,643 2,978,896 3,022,350
Interest on obligations of states and
political subdivisions (tax exempt)......................... 537,870 579,870 1,658,179 1,761,858
Interest on obligations of states and
political subdivisions (taxable)............................ 21,933 18,792 59,385 57,118
Interest on trading account securities........................ - - - -
Dividends and interest on all other securities................ 33,165 28,854 95,478 90,668
----------- ----------- ------------ -----------
Total interest on securities............................ 1,593,543 1,629,825 4,850,326 4,996,785
----------- ----------- ------------ -----------
Total interest income..................................... 8,165,177 8,638,498 24,948,013 25,519,915
Interest Expense
Interest on savings deposits.................................. 235,266 407,896 819,939 1,234,453
Interest on time deposits..................................... 1,513,570 2,050,586 4,914,355 6,412,133
Interest on federal funds purchased and securities
sold under agreement to repurchase.......................... 50,956 99,250 170,084 298,528
Interest on Federal Home Loan Bank advances................... 512,548 436,939 1,511,854 1,199,904
Interest on demand notes (note balances) issued to the
United States Treasury and on other borrowed money.......... 3,584 7,913 11,930 23,208
----------- ----------- ------------ -----------
Total interest expense.................................... 2,315,924 3,002,584 7,428,162 9,168,226
Net interest income........................................... 5,849,253 5,635,914 17,519,851 16,351,689
Provision for loan losses..................................... 300,000 600,000 900,000 1,300,000
----------- ----------- ------------ -----------
Net interest income after provision for loan losses........... 5,549,253 5,035,914 16,619,851 15,051,689
Other Income
Income from fiduciary activities.............................. 603,711 603,246 1,672,692 1,700,718
Service charges on deposit accounts........................... 742,910 721,276 2,187,228 2,150,334
Other service charges, commissions and fees................... 274,086 247,094 950,476 815,734
Other operating income........................................ 284,603 213,858 777,213 619,197
Security gains (losses)....................................... 15,429 2,391 44,518 11,789
Trading account income........................................ - - - -
----------- ----------- ------------ -----------
Total other income........................................ 1,920,739 1,787,865 5,632,127 5,297,772
Other Expenses
Salaries and employee benefits................................ 3,058,429 2,798,545 8,962,417 8,104,269
Occupancy expense of Bank premises............................ 309,969 284,399 920,077 853,692
Furniture and equipment expense............................... 407,510 408,042 1,228,858 1,228,697
Other operating expenses...................................... 1,106,008 1,047,734 3,363,035 3,271,035
----------- ----------- ------------ -----------
Total other expenses...................................... 4,881,916 4,538,720 14,474,387 13,457,693
----------- ----------- ------------ -----------
Income before taxes........................................... 2,588,076 2,285,059 7,777,591 6,891,768
Applicable income taxes....................................... 623,990 554,260 1,920,038 1,691,100
----------- ----------- ------------ -----------
Net income.................................................... $ 1,964,086 $ 1,730,799 $ 5,857,553 $ 5,200,668
=========== =========== ============ ===========
Per Share
Based on weighted average number of
common shares outstanding................................... 3,967,134 3,918,256 3,954,717 3,909,348
Basic Earnings per Share...................................... $ 0.50 $ 0.44 $ 1.48 $ 1.33
Diluted Earnings per Share.................................... $ 0.48 $ 0.43 $ 1.44 $ 1.30
</table>
2
<page>
<table>
<caption>
- -----------------------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION Nine Months Ended
Consolidated Statements of Cash Flows September 30,
(Unaudited) 2003 2002
- -----------------------------------------------------------------------------------------------
<s> <c> <c>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 5,857,553 $ 5,200,668
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................. 995,645 1,029,344
Provision for loan losses................................. 900,000 1,300,000
(Gains) loss on sale of investment securities, net........ (44,518) (11,789)
Net amortization & accretion of securities ............... 33,885 57,814
Net (increase) decrease in trading account................ - -
Loss on disposal of equipment............................. 2,398 92,591
(Increase) decrease in other real estate owned............ (509,501) (997,542)
(Increase) decrease in other assets
(net of tax effect of FASB 115 adjustment).............. (2,360,788) (6,688,925)
Increase (decrease) in other liabilities.................. 449,870 697,109
-------------- --------------
Net cash provided by operating activities............... 5,324,544 679,270
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities .................................. (110,790,608) (31,988,224)
Proceeds from maturities & calls of securities ........... 97,627,550 34,137,900
Proceeds from sales of available - for - sale securities.. 2,397,720 2,478,189
Proceeds from sales of held - to - maturity securities.... - -
Loans made to customers................................... (197,573,104) (187,072,518)
Principal payments received on loans...................... 184,134,150 160,025,797
Proceeds from sales of other real estate owned............ 1,149,092 1,019,430
Purchases of premises and equipment....................... (1,303,075) (580,137)
(Increase) decrease in federal funds sold................. 5,010,363 (15,867,562)
-------------- --------------
Net cash provided by (used in) investing activities..... (19,347,912) (37,847,125)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in non-interest bearing deposits...... 8,215,656 8,490,294
Increase (decrease) in savings deposits................... 8,402,508 9,211,884
Proceeds from the sale of certificates of deposit......... 60,462,744 91,058,080
Payments for maturing certificates of deposit............. (62,335,464) (79,090,751)
Increase (decrease) in federal funds purchased &
repurchase agreements.................................... 823,581 (3,993,649)
Increase (decrease) in Federal Home Loan Bank advances.... 5,000,000 5,000,000
Increase (decrease) in other borrowed money............... (5,430,553) 5,630,925
Proceeds from issuance of common stock.................... 375,184 329,772
Dividends paid............................................ (1,543,909) (1,303,335)
-------------- --------------
Net cash provided by financing activities............... 13,969,747 35,333,220
Net increase (decrease) in cash and due from banks...... (53,620) (1,834,635)
Cash and due from banks at beginning of period.......... 14,436,850 14,785,865
-------------- --------------
Cash and due from banks at end of period................ $ 14,383,230 $ 12,951,230
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest................................................ $ 7,568,603 $ 9,405,204
Income taxes............................................ 1,920,000 1,990,000
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Unrealized gain (loss) on investment securities, net
of tax................................................. (843,634) 2,129,243
Additional minimum liability related to pension.......... (620,723) (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, 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................................ - - - 5,857,553 - 5,857,553
Increase (decrease) in unrealized
gain on investment securities - - - - (843,634) (843,634)
Minimum pension liability adjustment........ (620,723) (620,723)
--------- ------------ ------------ ------------ ------------ ------------
Total Comprehensive Income 5,857,553 (1,464,357) 4,393,196
Sale of common stock........................ 33,773 168,865 1,095,788 (889,469) - 375,184
Cash dividends............... .............. - - - (1,543,909) - (1,543,909)
--------- ------------ ------------ ------------ ------------ ------------
Balance at end of period.................... 3,970,493 $ 19,852,465 $ 12,261,284 $ 29,021,743 $ 204,453 $ 61,339,945
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
</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 September 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
- ----------------------------------------------------------------------
Nine Months Ended
September 30,
2003 2002
---- ----
<s> <c> <c>
Net income:
As reported $5,857,553 $5,200,668
Fair value-based expense, net of tax (305,250) (204,000)
---------- ----------
Pro forma $5,552,303 $4,996,668
========== ==========
Basic earnings per share:
As reported $ 1.48 $ 1.33
Pro forma $ 1.40 $ 1.28
Diluted earnings per share:
As reported $ 1.44 $ 1.30
Pro forma $ 1.36 $ 1.25
</table>
6
<page>
<table>
<caption>
- -------------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION
Parent only Balance Sheets September 30, December 31,
(Unaudited) 2003 2002
- -------------------------------------------------------------------------------------
<s> <c> <c>
Assets
Cash in bank........................................... $ 450,654 $ 247,784
Investment Securities.................................. 2,201,050 2,115,000
Total Loans............................................ - -
Investment in Subsidiaries............................. 58,520,349 55,637,412
Equipment.............................................. - -
Other assets........................................... 167,892 115,278
------------ ------------
Total Assets........................................... $ 61,339,945 $ 58,115,474
============ ============
Liabilities and Stockholders' Equity
Total Liabilities...................................... $ - $ -
Stockholders' Equity................................... 61,339,945 58,115,474
------------ ------------
Total Liabilities & Stockholders' Equity............... $ 61,339,945 $ 58,115,474
============ ============
</table>
<table>
<caption>
- -------------------------------------------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION Three Months Ended: Nine Months Ended:
Parent only Income Statements September 30, September 30,
(Unaudited) 2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Income
Cash dividends from Subsidiary......................... $ 600,000 $ 475,000 $ 1,600,000 $ 1,375,000
Interest and fees on loans............................. - - - -
Interest income from investment securities............. 26,039 26,015 77,861 71,393
Gains (losses) from sale of investment securities...... - - - -
Other income........................................... 36,000 36,000 108,000 108,000
------------ ------------ ------------ ------------
Total Income........................................... 662,039 537,015 1,785,861 1,554,393
Expenses
Salaries and employee benefits......................... 72,449 65,986 219,778 202,738
Other expenses......................................... 32,008 27,136 100,975 74,590
------------ ------------ ------------ ------------
Total Expenses......................................... 104,457 93,122 320,753 277,328
------------ ------------ ------------ ------------
Income before taxes & undistributed
net income of subsidiaries......................... 557,582 443,893 1,465,108 1,277,065
Income tax............................................. (20,110) (16,740) (62,925) (51,700)
------------ ------------ ------------ ------------
Net income before undistributed
net income of subsidiaries........................... 577,692 460,633 1,528,033 1,328,765
Undistributed net income of subsidiaries............... 1,386,394 1,270,166 4,329,520 3,871,903
------------ ------------ ------------ ------------
Net Income............................................. $ 1,964,086 $ 1,730,799 $ 5,857,553 $ 5,200,668
============ ============ ============ ============
</table>
7
<page>
<table>
<caption>
- ------------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION Nine Months Ended:
Parent only Statements of Cash Flows September 30,
(Unaudited) 2003 2002
- ------------------------------------------------------------------------------------
<s> <c> <c>
Cash Flows from Operating Activities:
Net Income............................................. $ 5,857,553 $ 5,200,668
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed income of subsidiary....... (4,329,520) (3,871,903)
Depreciation......................................... - -
Gains(losses) on sale of securities [net].......... - -
(Increase) decrease in other assets................ (56,437) (45,113)
Increase (decrease) in other liabilities........... 620,723 -
------------ ------------
Net cash provided by operating activities.............. 2,092,319 1,283,652
Cash flows from investing activities:
(Increase)decrease in investment securities............ (100,000) (1,000,000)
Investment in subsidiaries ............................ (620,723) 600,000
Sale of equipment...................................... - -
Repayment of loans by customers........................ - -
------------ ------------
Net cash provided by investing activities.............. (720,723) (400,000)
Cash flows from financing activities:
Proceeds from issuance of common stock................. 375,183 329,772
Dividends paid......................................... (1,543,909) (1,303,335)
------------ ------------
Net cash provided by financing activities.............. (1,168,726) (973,563)
Net increase (decrease) in cash & due from banks....... 202,870 (89,911)
Cash & due from banks at beginning of period........... 247,784 275,795
------------ ------------
Cash & due from banks at end of period................. $ 450,654 $ 185,884
============ ============
</table>
8
<page>
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Earnings Summary
- ----------------
Net income for the third quarter of 2003 increased 13.48% to
$1.96 million from $1.73 million for the comparable period in
2002. Basic earnings per share were $0.50 in the third quarter
of 2003 compared with $0.44 in 2002.
For the nine months ended September 30, 2003 net income increased
12.63% to $5.86 million from $5.20 million in 2002. Basic
earnings per share were $1.48 for the first nine months of 2003
compared with $1.33 in 2002.
Return on average assets was 1.31% for the third quarter of 2003
and 1.25% for the comparable period in 2002. Return on average
equity was 12.90% for the third quarter of 2003 and 12.30% for
the third quarter of 2002.
For the nine months ended September 30, 2003 and 2002 return on
average assets was 1.32% and 1.30% respectively. Return on
average equity was 12.88% in 2003 and 12.77% 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 $209 thousand, or 3.54%, for the third quarter of 2003
over 2002. Average earning assets increased 8.19% in the third
quarter of 2003 from 2002.
For the nine months ended September 30, 2003 net interest income
on a fully tax equivalent basis increased $1.11 million, or
6.45%, over the comparable period in 2002. Comparing the first
nine months of 2003 to 2002, average loans increased $26.44
million or 7.37% while investment securities increased $23.05
million or 17.86%. Average earning assets increased 10.10% and the
net interest yield decreased from 4.59% in 2002 to 4.43% in 2003.
Interest expense decreased $685 thousand or 22.82% in the third
quarter of 2003 from the third quarter of 2002. Interest bearing
liabilities increased $24.02 million or 5.85% in the third
quarter of 2003 over the same period in 2002. The cost of
funding those liabilities decreased 79 basis points from 2002.
For the nine months ended September 30, 2003 interest expense
decreased $1.74 million, or 18.98% 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 September 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)** $388,392 $ 6,566 6.76% $370,199 $ 6,952 7.51%
Investment securities:
Taxable 113,898 1,025 3.60% 79,066 1,024 5.18%
Tax-exempt 45,427 815 7.18% 48,737 855 7.01%
-------- ------- -------- -------
Total investment securities 159,325 1,840 4.62% 127,803 1,879 5.88%
Federal funds sold 10,595 24 0.91% 18,025 75 1.66%
-------- ------- -------- -------
Total earning assets $558,312 $ 8,430 6.04% $516,027 $ 8,906 6.90%
======== ======= ======== =======
Time and savings deposits:
Interest-bearing transaction accounts $ 9,693 7 0.29% $ 7,635 $ 11 0.58%
Money market deposit accounts 119,329 181 0.61% 111,642 316 1.13%
Savings accounts 36,972 47 0.51% 32,720 80 0.98%
Certificates of deposit, $100,000 or more 58,756 380 2.59% 55,445 491 3.54%
Other certificates of deposit 146,277 1,134 3.10% 147,300 1,559 4.23%
-------- ------- -------- -------
Total time and savings deposits 371,027 1,749 1.89% 354,742 2,457 2.77%
Federal funds purchased and securities sold
under agreement to repurchase 22,018 51 0.93% 24,127 100 1.66%
Federal Home Loan Bank advances 40,278 513 5.09% 29,785 437 5.87%
Other short term borrowings 1,498 4 1.07% 2,151 8 1.49%
-------- ------- -------- -------
Total interest bearing liabilities. $434,821 2,317 2.13% $410,805 3,002 2.92%
Net interest income/yield $ 6,113 4.38% $ 5,904 4.58%
======= ===== ======= =====
- ----------------------------------------------------------------------------------------------------------
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)** $385,013 $20,039 6.94% $358,573 $20,411 7.59%
Investment securities:
Taxable 105,416 3,103 3.92% 79,746 3,154 5.27%
Tax-exempt 46,692 2,512 7.17% 49,313 2,670 7.22%
-------- ------- -------- -------
Total investment securities 152,108 5,615 4.92% 129,059 5,824 6.02%
Federal funds sold 14,448 118 1.09% 13,332 166 1.66%
-------- ------- -------- -------
Total earning assets $551,569 $25,772 6.23% $500,964 $26,401 7.03%
======== ======= ======== =======
Time and savings deposits:
Interest-bearing transaction accounts $ 9,451 $ 27 0.38% $ 7,543 $ 34 0.60%
Money market deposit accounts 118,060 637 0.72% 109,084 966 1.18%
Savings accounts 35,755 156 0.58% 31,592 234 0.99%
Certificates of deposit, $100,000 or more 58,005 1,254 2.88% 54,884 1,532 3.72%
Other certificates of deposit 148,675 3,660 3.28% 142,169 4,880 4.58%
-------- ------- -------- -------
Total time and savings deposits 369,946 5,734 2.07% 345,272 7,646 2.95%
Federal funds purchased and securities sold
under agreement to repurchase 21,570 170 1.05% 24,182 299 1.65%
Federal Home Loan Bank advances 39,680 1,512 5.08% 26,595 1,200 6.02%
Other short term borrowings 1,566 12 1.02% 2,066 23 1.48%
-------- ------- -------- -------
Total interest bearing liabilities $432,762 $ 7,428 2.29% $398,115 $ 9,168 3.07%
Net interest income/yield $18,344 4.43% $17,233 4.59%
======= ===== ======= =====
</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.
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 $900 thousand for the first
nine months of 2003, down from $1.30 million in the comparable
period in 2002. Loans charged off (net of recoveries) were $605
thousand compared with loans charged off (net of recoveries) of
$655 thousand in the first nine months of 2002. On an annualized
basis net loan charge-offs were 0.21% of total loans for the
first nine months of 2003 compared with 0.23% for the same
period in 2002.
On September 30, 2003 nonperforming assets totaled $453 thousand
compared with $2.11 million on September 30, 2002. The September
2003 total consisted of $25 thousand in foreclosed real estate,
$165 thousand in a former branch site now listed for sale, and
$263 thousand in nonaccrual loans. The September 2002 total
consisted of $1.33 million in foreclosed real estate, $165
thousand in a former branch site listed for sale and $611
thousand in nonaccrual loans. Loans still accruing interest but
past due 90 days or more increased to $1.01 million as of
September 30, 2003 compared with $546 thousand as of September
30, 2002.
The allowance for loan losses on September 30, 2003 was $4.86
million compared with $4.54 million on September 30, 2002. It
represented a multiple of 10.72 times nonperforming assets and 18.49
times nonperforming loans. The allowance for loan losses was
1.24% and 1.22% of loans on September 30, 2003 and 2002
respectively.
Other Income
- ------------
For the third quarter of 2003 other income increased $133
thousand, or 7.43%, and for the nine months ended September 30,
2003 other income increased $334 thousand or 6.31%. 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 third quarter of 2003 other expenses increased $343
thousand or 7.56% over the third quarter of 2002. For the nine
months ending September 2003 other expenses increased $1.02
million or 7.55% over the same period in 2002. For the nine
months ended September 30, 2003, salaries and employee benefits
increased $858 thousand or 10.59%. Occupancy expenses increased
$66 thousand or 7.78%.
Assets
- ------
At September 30, 2003 total assets were $596.06 million, up 3.37%
from $576.62 million at December 31, 2002. Total loans grew
$12.83 million or 3.40%.
Investment securities and federal funds sold increased by $4.49
million, or 2.72%, in 2003. Bank owned life insurance increased
$1.46 million due to the purchase of policies in 2003. Total
deposits increased $14.75 million, or 3.25% in 2003. Advances
from the FHLB increased $5.00 million, or 14.29% in 2003. Securities
sold under agreement to repurchase increased $824 thousand, or 3.87%
in 2003.
11
<page>
Capital Ratios
- --------------
The Company's capital position remains strong as evidenced by the
regulatory capital measurements. At September 30, 2003 the Tier
I capital ratio was 14.38%, the total capital ratio was 15.55%
and the leverage ratio was 9.97%. 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 branch opened in October 2003.
The Company purchased a vacant building in October 2003. The
building will be renovated and used as office space for bank
personnel. The renovations are expected to be completed in the
later portion of the 2nd quarter of 2004.
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 and loan growth that was slightly less
than targeted projections in the first nine months of 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 September 30, 2003. There were $114 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 $167.48 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 2.35% decrease in net income. The rate
shock model reveals that a 100 basis point rise in rates would
cause approximately a 3.40% increase in net income and that a 200
basis point rise in rates would cause approximately a 4.98%
increase in net income at September 30, 2003.
15
<page>
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) Two reports on Form 8-K were filed during the third quarter
of 2003.
August 14, 2003, a Form 8-K, which included two press releases,
both dated August 13, 2003. The first press release announced
the election of James Reade Chisman to the Board of Directors
of Old Point National Bank of Phoebus. The second press
release announced the declaration of a cash dividend in the
amount of $0.15 per share of common stock.
July 15, 2003, a Form 8-K, which included a press release,
dated July 10, 2003 announcing earnings and other financial
results for the second quarter of 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
November 7, 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