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, 2001 [ ] 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, 2001. Class Outstanding at October 31, 2001 Common Stock, $5.00 par value 2,598,776 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, 2001 and December 31, 2000...................1 Consolidated Statement of Earnings Three months ended September 30, 2001 and 2000.............2 Nine months ended September 30, 2001 and 2000..............2 Consolidated Statement of Cash Flows Nine months ended September 30, 2001 and 2000..............3 Consolidated Statements of Changes in Stockholders' Equity Nine months ended September 30, 2001 and 2000..............4 Notes to Consolidated Financial Statements.....................5 Parent Only Balance Sheets September 30, 2001 and December 31, 2000............6 Parent Only Statement of Earnings Three months ended September 30, 2001 and 2000......6 Nine months ended September 30, 2001 and 2000.......6 Parent Only Statement of Cash Flows Nine months ended September 30, 2001 and 2000.......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....12 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K..............................14 (i) <page> <table> <caption> - -------------------------------------------------------------------------------------------- Unaudited September 30, December 31, Consolidated Balance Sheets 2001 2000 - -------------------------------------------------------------------------------------------- <s> <c> <c> Assets Cash and due from banks................................. $ 10,942,437 $ 10,770,982 Interest bearing balances due from banks................ 350,201 272,790 -------------- -------------- Total cash due from banks 11,292,638 11,043,772 Investments: Securities available for sale, at market.............. 94,915,052 77,595,155 Securities to be held to maturity..................... 38,748,481 45,741,795 Trading account securities.............................. - - Federal funds sold...................................... 11,471,196 5,397,087 Loans, total ........................................... 338,014,573 319,909,569 Less reserve for loan losses........................ 3,692,708 3,648,819 -------------- -------------- Net loans....................................... 334,321,865 316,260,750 Bank premises and equipment............................. 14,615,836 15,059,350 Other real estate owned................................. 845,000 750,000 Other assets............................................ 4,822,706 5,248,347 -------------- -------------- Total assets....................................... $ 511,032,774 $ 477,096,256 ============== ============== Liabilities Noninterest-bearing deposits............................ $ 67,885,298 $ 65,055,835 Savings deposits........................................ 137,943,197 127,659,896 Time deposits........................................... 192,500,140 182,063,287 -------------- -------------- Total deposits....................................... 398,328,635 374,779,018 Federal funds purchased and securities sold under agreement to repurchase............................. 28,393,560 27,038,033 Interest-bearing demand notes issued to the United States Treasury and other liabilities for borrowed money.... 6,005,262 2,088,637 Federal Home Loan Bank advances......................... 25,000,000 25,000,000 Other liabilities....................................... 2,300,851 1,693,083 -------------- -------------- Total liabilities.................................... 460,028,308 430,598,771 Stockholders' Equity Common stock, $5.00 par value........................... 12,979,380 12,952,700 2001 2000 Shares authorized....10,000,000 10,000,000 Shares outstanding....2,595,876 2,590,540 Surplus................................................. 10,377,625 10,288,301 Undivided profits....................................... 26,197,768 23,297,402 Unrealized gain/(loss) on securities.................... 1,449,693 (40,918) -------------- -------------- Total stockholders' equity.......................... 51,004,466 46,497,485 -------------- -------------- Total liabilities and stockholders' equity.......... $ 511,032,774 $ 477,096,256 ============== ============== </table> 1 <page> <table> <caption> - --------------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended Consolidated Statements of Earnings September 30, September 30, 2001 2000 2001 2000 - --------------------------------------------------------------------------------------------------------------------- <s> <c> <c> <c> <c> Interest Income Interest and fees on loans.................................... $ 6,970,974 $ 6,734,942 $ 20,843,665 $ 19,066,618 Interest on federal funds sold................................ 115,433 77,934 495,121 127,218 Interest on securities: Interest on United States Treasury securities (taxable)....... 20,829 16,006 67,770 47,862 Interest on obligations of other United States Government agencies (taxable)................. 1,028,384 972,194 2,902,726 2,926,523 Interest on obligations of states and political subdivisions (tax exempt)......................... 618,025 670,849 1,879,235 2,052,822 Interest on obligations of states and political subdivisions (taxable)............................ 19,349 19,906 58,790 59,719 Interest on trading account securities........................ - - - - Dividends and interest on all other securities................ 78,644 101,479 255,875 269,437 ----------- ----------- ------------ ------------ Total interest on securities............................ 1,765,231 1,780,434 5,164,396 5,356,363 Trading account securities.................................... - - - - ----------- ----------- ------------ ------------ Total interest income..................................... 8,851,638 8,593,310 26,503,182 24,550,199 Interest Expense Interest on savings deposits.................................. 618,560 987,865 2,340,952 2,915,281 Interest on time deposits..................................... 2,723,513 2,560,744 8,398,223 7,145,091 Interest on federal funds purchased and securities sold under agreement to repurchase.......................... 212,636 342,494 755,157 1,001,922 Interest on Federal Home Loan Bank advances................... 387,806 510,211 1,150,771 1,023,752 Interest on demand notes (note balances) issued to the United States Treasury and on other borrowed money.......... 15,997 30,464 59,332 92,774 ----------- ----------- ------------ ------------ Total interest expense.................................... 3,958,512 4,431,778 12,704,435 12,178,820 Net interest income........................................... 4,893,126 4,161,532 13,798,747 12,371,379 Provision for loan losses..................................... 400,000 150,000 800,000 475,000 ----------- ----------- ------------ ------------ Net interest income after provision for loan losses........... 4,493,126 4,011,532 12,998,747 11,896,379 Other Income Income from fiduciary activities.............................. 756,836 630,000 2,076,004 1,890,000 Service charges on deposit accounts........................... 685,942 564,943 1,906,123 1,659,676 Other service charges, commissions and fees................... 184,788 156,900 570,558 526,724 Other operating income........................................ 116,986 41,122 276,763 142,120 Security gains (losses)....................................... - 3,525 - 10,259 Trading account income........................................ - - - - ----------- ----------- ------------ ------------ Total other income........................................ 1,744,552 1,396,490 4,829,448 4,228,779 Other Expenses Salaries and employee benefits................................ 2,551,805 2,353,627 7,444,968 6,946,235 Occupancy expense of Bank premises............................ 284,065 261,802 831,054 776,407 Furniture and equipment expense............................... 404,201 353,493 1,225,704 1,120,472 Other operating expenses...................................... 999,880 852,902 2,963,961 2,632,076 ----------- ----------- ------------ ------------ Total other expenses...................................... 4,239,951 3,821,824 12,465,687 11,475,190 ----------- ----------- ------------ ------------ Income before taxes........................................... 1,997,727 1,586,198 5,362,508 4,649,968 Applicable income taxes....................................... 486,278 331,100 1,251,978 937,100 ----------- ----------- ------------ ------------ Net income.................................................... $ 1,511,449 $ 1,255,098 $ 4,110,530 $ 3,712,868 =========== =========== ============ ============ Per Share Based on weighted average number of common shares outstanding................................... 2,595,876 2,590,540 2,592,338 2,585,797 Basic Earnings per Share...................................... $ 0.58 $ 0.48 $ 1.59 $ 1.44 Diluted Earnings per Share.................................... $ 0.58 $ 0.47 $ 1.57 $ 1.41 </table> 2 <page> <table> <caption> - ----------------------------------------------------------------------------------------------- OLD POINT FINANCIAL CORPORATION Nine Months Ended Consolidated Statements of Cash Flows September 30, (Unaudited) 2001 2000 - ----------------------------------------------------------------------------------------------- <s> <c> <c> CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................. $ 4,110,530 $ 3,712,868 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................. 1,077,465 978,264 Provision for loan losses................................. 800,000 475,000 (Gains) loss on sale of investment securities, net........ - (10,259) Net amortization & accretion of securities ............... 26,219 52,148 Net (increase) decrease in trading account................ - - (Increase) in other real estate owned..................... (555,000) (200,000) (Increase) decrease in other assets (net of tax effect of FASB 115 adjustment).............. (342,248) (788,820) Increase (decrease) in other liabilities.................. 607,768 707,873 -------------- -------------- Net cash provided by operating activities............... 5,724,734 4,927,074 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities .................................. (36,153,730) (1,096,576) Proceeds from maturities & calls of securities ........... 26,759,429 1,360,500 Proceeds from sales of available - for - sale securities.. 1,300,000 2,789,891 Proceeds from sales of held - to - maturity securities.... - - Loans made to customers................................... (136,515,302) (126,387,975) Principal payments received on loans...................... 117,654,186 94,573,449 Proceeds from sales of other real estate owned............ 460,000 - Purchases of premises and equipment....................... (633,951) (1,342,042) (Increase) decrease in federal funds sold................. (6,074,109) (6,882,111) -------------- -------------- Net cash provided by (used in) investing activities..... (33,203,477) (36,984,864) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in non-interest bearing deposits...... 2,829,463 4,506,911 Increase (decrease) in savings deposits................... 10,283,301 (4,843,633) Proceeds from the sale of certificates of deposit......... 52,740,326 57,136,267 Payments for maturing certificates of deposit............. (42,303,473) (47,823,827) Increase (decrease) in federal funds purchased & repurchase agreements.................................... 1,355,527 2,155,744 Increase (decrease) in Federal Home Loan Bank advances.... - 20,000,000 Increase (decrease) in other borrowed money............... 3,916,625 1,259,980 Proceeds from issuance of common stock.................... 98,342 129,158 Dividends paid............................................ (1,192,502) (1,111,933) -------------- -------------- Net cash provided by financing activities............... 27,727,609 31,408,667 Net increase (decrease) in cash and due from banks...... 248,866 (649,123) Cash and due from banks at beginning of period.......... 11,043,772 10,400,337 -------------- -------------- Cash and due from banks at end of period................ $ 11,292,638 $ 9,751,214 ============== ============== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash payments for: Interest................................................ $ 12,907,040 $ 12,025,878 Income taxes............................................ 1,250,000 1,050,000 </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, 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 --------- ------------ ------------ ------------ ------------ ------------ 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 FOR NINE MONTHS ENDED SEPTEMBER 30, 2000 Balance at beginning of period.............. 2,583,262 $ 12,916,310 $ 10,185,985 $ 19,674,272 $ (1,962,890) $ 40,813,677 Comprehensive Income Net income................................ - - - 3,712,868 - 3,712,868 Increase (decrease) in unrealized gain on investment securities - - - - 980,323 980,323 --------- ------------ ------------ ------------ ------------ ------------ Total Comprehensive Income 3,712,868 980,323 4,693,191 Sale of common stock........................ 7,278 36,390 102,316 (9,548) - 129,158 Cash dividends............... .............. - - - (1,111,933) - (1,111,933) --------- ------------ ------------ ------------ ------------ ------------ Balance at end of period.................... 2,590,540 $ 12,952,700 $ 10,288,301 $ 22,265,659 $ (982,567) $ 44,524,093 </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 2000 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. 5 <page> <table> <caption> - ------------------------------------------------------------------------------------- OLD POINT FINANCIAL CORPORATION Parent only Balance Sheets September 30, December 31, (Unaudited) 2001 2000 - ------------------------------------------------------------------------------------- <s> <c> <c> Assets Cash in bank........................................... $ 60,371 $ 225,339 Investment Securities.................................. 2,405,000 2,170,000 Total Loans............................................ - - Investment in Subsidiaries............................. 48,448,854 44,089,034 Equipment.............................................. - - Other assets........................................... 90,241 13,112 ------------ ------------ Total Assets........................................... $ 51,004,466 $ 46,497,485 ============ ============ Liabilities and Stockholders' Equity Total Liabilities...................................... $ - $ - Stockholders' Equity................................... 51,004,466 46,497,485 ------------ ------------ Total Liabilities & Stockholders' Equity............... $ 51,004,466 $ 46,497,485 ============ ============ </table> <table> <caption> - ------------------------------------------------------------------------------------------------------------------- OLD POINT FINANCIAL CORPORATION Three Months Ended: Nine Months Ended: Parent only Income Statements September 30, September 30, (Unaudited) 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------------------- <s> <c> <c> <c> <c> Income Cash dividends from Subsidiary......................... $ 425,000 $ 425,000 $ 1,275,000 $ 1,225,000 Interest and fees on loans............................. - - - - Interest income from investment securities............. 28,062 32,224 88,398 90,791 Gains (losses) from sale of investment securities...... - - - - Other income........................................... 36,000 36,000 108,000 108,000 ------------ ------------ ------------ ------------ Total Income........................................... 489,062 493,224 1,471,398 1,423,791 Expenses Salaries and employee benefits......................... 57,550 57,084 178,153 176,842 Other expenses......................................... 26,470 39,095 99,646 126,284 ------------ ------------ ------------ ------------ Total Expenses......................................... 84,020 96,179 277,799 303,126 ------------ ------------ ------------ ------------ Income before taxes & undistributed net income of subsidiaries......................... 405,042 397,045 1,193,599 1,120,665 Income tax............................................. (13,722) (16,900) (47,722) (54,900) ------------ ------------ ------------ ------------ Net income before undistributed net income of subsidiaries........................... 418,764 413,945 1,241,321 1,175,565 Undistributed net income of subsidiaries............... 1,092,685 841,153 2,869,209 2,537,303 ------------ ------------ ------------ ------------ Net Income............................................. $ 1,511,449 $ 1,255,098 $ 4,110,530 $ 3,712,868 ============ ============ ============ ============ </table> 6 <page> <table> <caption> - ------------------------------------------------------------------------------------ OLD POINT FINANCIAL CORPORATION Nine Months Ended: Parent only Statements of Cash Flows September 30, (Unaudited) 2001 2000 - ------------------------------------------------------------------------------------ <s> <c> <c> Cash Flows from Operating Activities: Net Income............................................. $ 4,110,530 $ 3,712,868 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsidiary....... (2,869,209) (2,537,303) Depreciation......................................... - - Gains(losses) on sale of securities [net].......... - - (Increase) Decrease in other assets................ (77,129) (55,403) Increase (decrease in other liabilities)........... - - ------------ ------------ Net cash provided by operating activities.............. 1,164,192 1,120,162 Cash flows from investing activities: Purchase of securities................................. - - Proceeds froms sales of available-for-sale securities.. - - (Increase)decrease in investment securities............ (235,000) (160,000) Investment in subsidiaries ............................ - - Sale of equipment...................................... - - Repayment of loans by customers........................ - - ------------ ------------ Net cash provided by investing activities.............. (235,000) (160,000) Cash flows from financing activities: Proceeds from issuance of common stock................. 98,342 129,159 Dividends paid......................................... (1,192,502) (1,111,933) ------------ ------------ Net cash provided by financing activities.............. (1,094,160) (982,774) Net increase (decrease) in cash & due from banks....... (164,968) (22,612) Cash & due from banks at beginning of period........... 225,339 59,502 ------------ ------------ Cash & due from banks at end of period................. $ 60,371 $ 36,890 ============ ============ </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 2001 increased 20.42% to $1,511,449 from $1,255,098 for the comparable period in 2000. Basic earnings per share were $0.58 in the third quarter of 2001 compared with $0.48 in 2000. For the nine months ended September 30, 2001 net income increased 10.71% to $4,110,530 from $3,712,868 in 2000. Basic earnings per share were $1.59 for the first nine months of 2001 compared with $1.44 in 2000. Return on average assets was 1.19% for the third quarter of 2001 and 1.07% for the comparable period in 2000. Return on average equity was 11.97% for the third quarter of 2001 and 11.34% for the third quarter of 2000. For the nine months ended September 30, 2001 and 2000 return on average assets was 1.10% and 1.09% respectively. Return on average equity was 11.17% in 2001 and 11.66% in 2000. 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 $709 thousand, or 15.64%, for the third quarter of 2001 over 2000. Average earning assets increased 7.17% in the third quarter of 2001 over 2000. The net interest yield increased from 4.07% in 2000 to 4.39% in 2001. For the nine months ended September 30, 2001 net interest income on a fully tax equivalent basis increased $1.35 million, or 9.98%, over the same period in 2000. Comparing the first nine months of 2001 to 2000, average loans increased $28.89 million or 9.65% while investment securities decreased $5.41 million or 4.17%. Average earning assets increased 8.34% and the net interest yield increased from 4.17% in 2000 to 4.23% in 2001. Interest expense decreased $474 thousand or 10.69% in the third quarter of 2001 from the same period in 2000. Interest bearing liabilities increased $26.86 million or 7.47 % in the third quarter of 2001 over the same period in 2000. The cost of funding those liabilities decreased 83 basis points from 2000. For the nine month period ended September 30, 2001 interest expense increased $525 thousand, or 4.31% over the same period in 2000. 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) * 2001 2000 - ---------------------------------------------------------------------------------------------------------- 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)** $335,114 $ 7,007 8.36% $312,201 $ 6,760 8.66% Investment securities: Taxable 77,019 1,164 6.05% 72,886 1,110 6.09% Tax-exempt 51,624 914 7.08% 55,795 1,017 7.29% -------- ------- -------- ------- Total investment securities 128,643 2,078 6.46% 128,681 2,127 6.61% Federal funds sold 13,361 115 3.44% 4,304 78 7.25% -------- ------- -------- ------- Total earning assets $477,118 $ 9,200 7.71% $445,186 $ 8,965 8.05% ======== ======= ======== ======= Time and savings deposits: Interest-bearing transaction accounts $ 6,664 $ 24 1.44% $ 5,100 $ 30 2.35% Money market deposit accounts. 102,212 485 1.90% 91,802 766 3.34% Savings accounts 29,193 110 1.51% 27,906 192 2.75% Certificates of deposit, $100,000 or more 50,363 675 5.36% 34,663 544 6.28% Other certificates of deposit 143,893 2,048 5.69% 139,420 2,017 5.79% -------- ------- -------- ------- Total time and savings deposits 332,325 3,342 4.02% 298,891 3,549 4.75% Federal funds purchased and securities sold under agreement to repurchase. 26,937 212 3.15% 26,809 342 5.10% Federal Home Loan Bank advances 25,000 388 6.21% 32,000 510 6.38% Other short term borrowings 1,972 16 3.25% 1,677 31 7.39% -------- ------- -------- ------- Total interest bearing liabilities. $386,234 3,958 4.10% $359,377 4,432 4.93% Net interest income/yield $ 5,242 4.39% $ 4,533 4.07% ======= ===== ======= ===== - ---------------------------------------------------------------------------------------------------------- For the nine months ended September 30, 2001 2000 - ---------------------------------------------------------------------------------------------------------- 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)** $328,393 $20,924 8.50% $299,503 $19,138 8.52% Investment securities: Taxable 71,898 3,286 6.09% 72,964 3,304 6.04% Tax-exempt 52,337 2,847 7.25% 56,676 3,111 7.32% -------- ------- -------- ------- Total investment securities 124,235 6,133 6.58% 129,640 6,415 6.60% Federal funds sold. 14,958 495 4.41% 2,454 127 6.90% -------- ------- -------- ------- Total earning assets $467,586 $27,552 7.86% $431,597 $25,680 7.93% ======== ======= ======= Time and savings deposits: Interest-bearing transaction accounts $ 6,305 $ 82 1.73% $ 4,345 $ 77 2.36% Money market deposit accounts 99,334 1,803 2.42% 94,098 2,258 3.20% Savings accounts 28,659 456 2.12% 28,325 580 2.73% Certificates of deposit, $100,000 or more 48,964 2,064 5.62% 32,601 1,434 5.86% Other certificates of deposit 143,124 6,334 5.90% 136,565 5,711 5.58% -------- ------- -------- ------- Total time and savings deposits 326,386 10,739 4.39% 295,934 10,060 4.53% Federal funds purchased and securities sold under agreement to repurchase. 26,031 755 3.87% 27,151 1,002 4.92% Federal Home Loan Bank advance 25,000 1,151 6.14% 21,956 1,024 6.22% Other short term borrowings 1,953 59 4.03% 2,087 93 5.94% -------- ------- -------- ------- Total interest bearing liabilities $379,370 12,704 4.46% $347,128 12,179 4.68% Net interest income/yield $14,848 4.23% $13,501 4.17% ======= ===== ======= ===== </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 $800 thousand for the first nine months of 2001, up from $475 thousand in the comparable period in 2000. Loans charged off (net of recoveries) were $756,111 compared with loans charged off (net of recoveries) of $91,260 in the first nine months of 2000. On an annualized basis net loan charge-offs were 0.30% of total loans for the first three quarters of 2001 compared with 0.04% for the same period in 2000. On September 30, 2001 nonperforming assets totaled $1.28 million compared with $1.02 million on September 30, 2000. The September 2001 total consisted of $680 thousand in foreclosed real estate, $165 thousand in a former branch site now listed for sale, and $437 thousand in nonaccrual loans. The September 2000 total consisted of $200 thousand in foreclosed real estate, $354 thousand in a former branch site, and $465 thousand in nonaccrual loans. Loans still accruing interest but past due 90 days or more decreased to $214 thousand as of September 30, 2001 compared with $977 thousand as of September 30, 2000. The allowance for loan losses on September 30, 2001 was $3.69 million compared with $3.49 million on September 30, 2000. It represented a multiple of 2.88 times nonperforming assets and 8.45 times nonperforming loans. The allowance for loan losses was 1.09% of loans on September 30, 2001 compared to 1.12% at September 30, 2000. Other Income - ------------ For the third quarter of 2001 other income increased $348 thousand, or 24.92%, and for the nine months ended September 30, 2001 other income increased $601 thousand or 14.20%. In both periods, service charges on deposits accounts accounted for the largest percentage increase due to implementation of a new fee structure effective July 1, 2001 and the opening of a new branch office in February 2001. Other Expenses - -------------- For the third quarter of 2001 other expenses increased $418 thousand or 10.94% over the third quarter of 2000. For the nine months ending September 2001 other expenses increased $990 thousand or 8.63% over the same period in 2000. For the nine months ended September 30, 2001, salaries and employee benefits increased $499 thousand or 7.18%. Occupancy expenses increased $55 thousand or 7.04%. Furniture and equipment expense increased $105 thousand or 9.39%. Other operating expense increased $332 thousand or 12.61%. Expenses have increased due to the opening of a new branch office in February 2001. Assets - ------ At September 30, 2001 total assets were $511.03 million, up 7.11% from $477.10 million at December 31, 2000. Total loans grew $18.11 million or 5.66%. Federal funds sold increased $6.07 million or 112.54%. Investment securities increased by $10.33 million, or 8.24%, in 2001. Total deposits increased $23.55 million, or 6.28% in 2001 and demand note balances to the United States Treasury increased $3.92 million from year-end 2000. 10 <page> Capital Ratios - -------------- The Company's capital position remains strong as evidenced by the regulatory capital measurements. At September 30, 2001 the Tier I capital ratio was 14.02%, the total capital ratio was 15.06% and the leverage ratio was 9.74%. 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 2000 for a new branch site in Williamsburg, Virginia. An office building will be constructed on this site in the near future. 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 strong deposit growth in the third quarter of 2001 and continues to be well above targeted projections made for 2001. Loan growth for the first nine months of 2001 is slightly below targeted projections. The Company is extremely liquid as reflected in the large growth in federal funds sold balance as of September 30, 2001. 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 in an inflationary environment is its ability to maintain or improve its net interest margin and to generate additional fee income. The Company has reduced interest rates on interest bearing deposit accounts to maintain alignment with the decreases in the federal funds rates throughout 2001. 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. 11 <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, 2001. There were $128.9 million more in liabilities than assets subject to repricing within three months. This is an improvement from December 31, 2000. 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 $129.2 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 200 basis point rise in rates would cause approximately a 0.53% increase in net income. The model indicates a 300 basis point rise in rates would cause approximately a 0.02% increase in net income at September 30, 2001. 12 <page> PART II - OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) No reports on Form 8-K were filed during the third quarter of 2001. 13 <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 2, 2001 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 14