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 March 31, 1996 [ ] 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 (804) 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 April 30, 1996. Class Outstanding at April 30, 1996 Common Stock, $5.00 par value 1,273,537 shares OLD POINT FINANCIAL CORPORATION FORM 10-Q INDEX PART I - FINANCIAL INFORMATION Page Item 1. Financial Statements . . . . . . . . . . . . . . . . 1 Consolidated Balance Sheets March 31, 1996 and December 31, 1995 . . . . . . . 1 Consolidated Statement of Earnings Three months ended March 31, 1996 and 1995 . . . . 2 Consolidated Statement of Cash Flows Three months ended March 31, 1996 and 1995 . . . . 3 Consolidated Statements of Changes in Stockholders' Equity Three months ended March 31, 1996 and 1995 . . . . 4 Notes to Consolidated Financial Statements . . . . . . 5 Parent Only Balance Sheets March 31, 1996 and December 31, 1995. . . . . 6 Parent Only Statement of Earnings Three months ended March 31, 1996 and 1995. . 6 Parent Only Statement of Cash Flows Three months ended March 31, 1996 and 1995. . 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . 8 Analysis of Changes in Net Interest Income . . . . 9 Interest Sensitivity Analysis. . . . . . . . . . .12 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . .14 (i) PART 1. - FINANCIAL INFORMATION <TABLE> OLD POINT FINANCIAL CORPORATION <CAPTION> Consolidated Balance Sheets March 31, December 31, (Unaudited) 1996 1995 Assets <S> <C> <C> Cash and due from banks........................ $ 9,037,802 $ 10,866,517 Interest bearing balances due from banks....... 956 65,028 Securities available for sale, at market....... 77,068,099 77,603,883 Securities to be held to maturity.............. 17,325,959 15,019,712 Trading account securities..................... -- -- Federal funds sold............................. 8,298,620 512,797 Loans, total................................... 190,973,370 188,055,509 Less reserve for loan losses............... 2,286,870 2,251,030 Net loans.............................. 188,686,500 185,804,479 Bank premises and equipment.................... 8,759,061 8,302,558 Other real estate owned........................ 707,916 953,647 Other assets................................... 5,777,535 5,137,401 Total assets.............................. $ 315,662,448 $ 304,266,022 Liabilities Noninterest-bearing deposits................... $ 46,774,308 $ 42,901,973 Savings deposits............................... 96,605,916 95,804,604 Time deposits.................................. 121,114,203 117,828,401 Total deposits.............................. 264,494,427 256,534,978 Federal funds purchased and securities sold und agreement to repurchase.................... 14,839,698 15,736,474 Interest-bearing demand notes issued to the Uni Treasury and other liabilities for borrowed 3,702,623 559,813 Other liabilities.............................. 2,117,316 1,106,840 Total liabilities........................... 285,154,064 273,938,105 Stockholders' Equity Common stock, $5.00 par value.................. 6,367,685 6,367,685 Shares authorized.................6,000,000 Shares outstanding...............1,272,537 Surplus........................................ 9,344,798 9,344,798 Undivided profits.............................. 14,763,010 14,085,650 Unrealized gain/(loss) on securities .......... 32,891 529,784 Total stockholders' equity................. 30,508,384 30,327,917 Total liabilities and stockholders' equity. $ 315,662,448 $ 304,266,022 See accompanying notes </TABLE> - 1 - <TABLE> OLD POINT FINANCIAL CORPORATION <CAPTION> Three Months Ended Consolidated Statements of Earnings March 31, (Unaudited) 1996 1995 Interest Income <S> <C> <C> Interest and fees on loans..................... $ 4,199,063 $ 3,894,576 Interest on federal funds sold................. 40,876 41,443 Interest on securities: Taxable..................................... 1,183,523 1,098,817 Exempt from Federal income tax.............. 179,937 103,362 Total interest on securities............. 1,363,460 1,202,179 Interest on trading account.................... -- -- Total interest income...................... 5,603,399 5,138,198 Interest Expense Interest on savings deposits................... 660,198 684,693 Interest on time deposits...................... 1,663,554 1,288,994 Interest on federal funds purchased and securit sold under agreement to repurchase........... 182,070 132,083 Interest on demand notes (note balances) issued United States Treasury and on other borrowed 21,624 27,348 2,527,446 2,133,118 Total interest expense..................... Net interest income............................ 3,075,953 3,005,080 Provision for loan losses...................... 50,000 25,000 Net interest income after provision for loan lo 3,025,953 2,980,080 Other Income Income from fiduciary activities............... 389,838 340,421 Service charges on deposit accounts............ 487,336 465,492 Other service charges, commissions and fees.... 77,664 45,247 Other operating income......................... 130,374 104,716 Security gains (losses)........................ -- -- Trading account income......................... -- -- Total other income......................... 1,085,212 955,876 Other Expenses Salaries and employee benefits................. 1,846,561 1,769,691 Occupancy expense of Bank premises............. 187,739 170,701 Furniture and equipment expense................ 247,316 234,343 Other operating expenses....................... 604,189 766,872 Total other expenses....................... 2,885,805 2,941,607 Income before taxes............................ 1,225,360 994,349 Applicable income taxes ....................... 347,600 260,000 Net income..................................... $ 877,760 $ 734,349 Per Share Based on weighted average number of common shares outstanding.................... 1,273,537 1,268,307 Net income..................................... $ 0.69 $ 0.58 See accompanying notes </TABLE> - 2 - <TABLE> OLD POINT FINANCIAL CORPORATION <CAPTION> Three Months Ended Consolidated Statements of Cash Flows March 31, (Unaudited) 1996 1995 <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income................................................ $ 877,760 $ 734,349 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................... 211,435 192,367 Provision for loan losses............................... 50,000 25,000 Gains on sale of investment securities, net............. 0 0 Net amortization & accretion of securities available for 215,927 304,490 Net (increase) decrease in trading account.............. 0 0 Increase in other real estate owned..................... 0 (353,864) (Increase) decrease in other assets (net of tax effect of FASB 115 adjustment)............ (384,161) (26,545) Increase (decrease) in other liabilities................ 1,010,476 400,109 Net cash provided by operating activities............. 1,981,437 1,275,906 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities ................................ (8,989,256) (273,464) Proceeds from maturities & calls of securities ......... 6,250,000 3,400,000 Proceeds from sales of securities....................... 0 0 Loans made to customers................................. (17,694,398) (21,453,675) Principal payments received on loans.................... 14,762,377 18,304,832 Proceeds from sales of other real estate owned.......... 245,731 28,700 Purchases of premises and equipment..................... (667,938) 102,891 (Increase) decrease in federal funds sold............... (7,785,823) (2,972,554) Net cash provided by (used in) investing activities... (13,879,306) (2,863,270) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in non-interest bearing deposits.... 3,872,335 2,445,632 Increase (decrease) in savings deposits................. 801,312 (3,168,752) Proceeds from the sale of certificates of deposit....... 8,710,326 21,368,582 Payments for maturing certificates of deposit........... (5,424,524) (17,005,644) Increase (decrease) in federal funds purchased & repurchase agreements.................................. (896,776) (3,732,819) Increase (decrease) in other borrowed money............. 3,142,810 1,291,993 Proceeds from issuance of common stock.................. 0 88,195 Dividends paid.......................................... (200,400) (191,030) Net cash provided by financing activities............. 10,005,083 1,096,157 Net increase (decrease) in cash and due from banks.... (1,892,787) (491,206) Cash and due from banks at beginning of period........ 10,931,545 8,940,712 Cash and due from banks at end of period.............. $ 9,038,758 $ 8,449,506 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash payments for: Interest.............................................. 2,477,201 1,819,451 Income taxes.......................................... 0 0 See accompanying notes </TABLE> - 3 - OLD POINT FINANCIAL CORPORATION <TABLE> STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) <CATPION> Unrealized Common Stock Undivided Gain/(Loss) Shares Amount Surplus Profits On Securities Total FOR THREE MONTHS ENDED MARCH 31, 1996 <S> <C> <C> <C> <C> <C> <C> Balance at beginning of period..... 1,273,537 $6,367,685 $9,344,798 $14,085,650 $529,784 $30,327,917 Net income......................... -- -- -- 877,760 -- 877,760 Sale of common stock............... -- -- -- -- -- -- Cash dividends..................... -- -- -- (200,400) -- (200,400) Increase in unrealized gain on securities.................... -- -- -- -- (496,893) (496,893) Balance at end of period........... 1,273,537 $6,367,685 $9,344,798 $14,763,010 $32,891 $30,508,384 FOR THREE MONTHS ENDED MARCH 31, 1995 Balance at beginning of period..... 1,263,903 6,319,515 9,031,923 12,793,050 (1,923,349) 26,221,139 Net income......................... -- -- -- 734,349 -- 734,349 Sale of common stock............... 9,634 48,170 312,875 (272,850) -- 88,195 Cash dividends............... ..... -- -- -- (191,030) -- (191,030) Increase in unrealized gain on securities................... -- -- -- -- 1,037,874 1,037,874 Balance at end of period........... 1,273,537 $6,367,685 $9,344,798 $13,063,519 ($885,475) $27,890,527 See accompanying notes </TABLE> - 4 - 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 1995 Annual Report to Shareholders and Form 10-K. 2. Earnings per common share outstanding are computed by dividing income by the weighted average number of outstanding common shares for each period presented. OLD POINT FINANCIAL CORPORATION <TABLE> Parent only Balance Sheets <CAPTION> March 31, December 31, (Unaudited) 1996 1995 Assets <S> <C> <C> Cash in bank................................ $ 193,404 $ 122,263 Investment Securities....................... 1,665,863 1,670,105 Total Loans................................. 51,262 51,832 Investment in Subsidiary.................... 28,556,772 28,395,784 Equipment................................... 17,075 17,963 Other assets................................ 24,008 69,970 Total Assets................................ $ 30,508,384 $ 30,327,917 Liabilities and Stockholders' Equity Total Liabilities........................... $ 0 $ 0 Stockholders' Equity........................ 30,508,384 30,327,917 Total Liabilities & Stockholders' Equity.... $ 30,508,384 $ 30,327,917 </TABLE> OLD POINT FINANCIAL CORPORATION <TABLE> Parent only Income Statements (Unaudited) <CAPTION> Three Months Ended: March 31, 1996 1995 Income <S> <C> <C> Cash dividends from Subsidiary.............. $ 250,000 $ 250,000 Interest and fees on loans.................. 1,097 1,144 Interest income from investment securities.. 20,589 21,181 Gains (losses) from sale of investment secur 0 0 Other income................................ 0 0 Total Income................................ 271,686 272,325 Expenses Salaries and employee benefits.............. 50,209 56,028 Other expenses.............................. 11,198 10,134 Total Expenses.............................. 61,407 66,162 Income before taxes & undistributed net income of subsidiary................ 210,279 206,163 Income tax.................................. (12,400) (15,000) Net income before undistributed net income of subsidiary.................. 222,679 221,163 Undistributed net income of subisdiary...... 655,081 513,186 Net Income.................................. $ 877,760 $ 734,349 </TABLE? - 6 - OLD POINT FINANCIAL CORPORATION </TABLE> <TABLE> Parent only Statements of Cash Flows (Unaudited) <CAPTION> Three Months Ended: March 31, 1996 1995 Cash Flows from Operating Activities: <S> <C> <C> Net Income.................................. $ 877,760 $ 734,349 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsid (655,081) (513,186) Depreciation.............................. 888 0 Gains(losses) on sale of securities [net 0 0 (Increase) Decrease in other assets..... 47,404 (15,158) Increase (decrease in other liabilities) 0 0 Net cash provided by operating activities... 270,971 206,005 Cash flows from investing activities: (Increase)decrease in investment securities. 0 (172,364) Repayment of loans by customers............. 570 520 Net cash provided by investing activities... 570 (171,844) Cash flows from financing activities: Proceeds from issuance of common stock...... 0 88,195 Dividends paid.............................. (200,400) (191,030) Net cash provided by financing activities... (200,400) (102,835) Net increase (decrease) in cash & due from b 71,141 (68,674) Cash & due from banks at beginning of period 122,263 154,143 Cash & due from banks at end of period...... $ 193,404 $ 85,469 </TABLE> - 7 - Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Summary Net income for the first quarter of 1996 increased 20% to $877,760 from $734,349 for the comparable period in 1995. Earnings per share were $0.69 in the first quarter of 1996 compared with $0.58 in 1995. Return on average assets was 1.15% for the first quarter of 1996 and 1.05% for the comparable period in 1995. Return on average equity was 11.44% for the first quarter of 1996 and 10.79% for the first quarter of 1995. Net Interest Income Net interest income, on a fully tax equivalent basis, increased $106,000, or 3%, for the first three months of 1996 over 1995. Average earning assets increased 11% and the net interest yield, defined as the ratio of net interest income on a fully tax equivalent basis to total earning assets, decreased from 4.75% in 1995 to 4.43% in 1996. The decline in the net interest yield was due to growth in higher yielding certificates of deposit. Comparing the first quarter 1996 to 1995, average loans increased 10% while average federal funds sold increased 18% and average investment securities increased 13%. Deposit growth has provided funding for strong loan demand and increased investment in securities. Certificates of deposit increased 15% and interest checking and savings accounts increased 1%. Net interest income continues to be negatively impacted by nonperforming loans. The level of nonperforming loans is expected to continue to depress the net interest yield through the remainder of 1996. Page 9 shows an analysis of average earning assets, interest bearing liabilities and rates and yields. OLD POINT FINANCIAL CORPORATION <TABLE> NET INTEREST INCOME ANALYSIS (Fully taxable equivalent basis)<F1> <CAPTION> For the quarter ended March 31, 1996 1995 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 <F2>......................... $192,291 $4,226 8.79% $175,434 $3,935 8.97% Investment securities: Taxable.......................... 80,155 1,183 5.90% 75,119 1,099 5.85% Tax-exempt....................... 12,596 273 8.66% 6,675 156 9.35% Total investment securities.... 92,751 1,456 6.28% 81,794 1,255 6.14% Federal funds sold................. 3,464 41 4.73% 2,942 41 5.57% Total earning assets............. $288,506 $5,723 7.93% $260,170 $5,231 8.04% Time and savings deposits: Interest-bearing transaction acco $49,458 $298 2.41% $49,027 $319 2.60% Money market deposit accounts.... 19,529 179 3.67% 18,718 180 3.85% Savings accounts................. 27,118 183 2.70% 27,324 185 2.71% Certificates of deposit, $100,000 16,031 219 5.46% 12,350 156 5.05% Other certificates of deposit.... 103,187 1,445 5.60% 91,333 1,143 5.01% Total time and savings deposits 215,323 2,324 4.32% 198,752 1,983 3.99% Federal funds purchased and securit under agreement to repurchase.... 14,933 182 4.88% 11,166 132 4.73% Other short term borrowings........ 1,419 22 6.20% 2,022 27 5.34% Total interest bearing liabilitie $231,675 2,528 4.36% $211,940 2,142 4.04% Net interest income/yield.......... $3,195 4.43% $3,089 4.75% <FN> <F1>Tax equivalent yields based on 34% tax rate. <F2>Nonaccrual loans are included in the average loan balances and income on such loans is recognized on a </FN> </TABLE> - 9 - Provision/Allowance for Loan Losses The provision for loan losses increased to $50,000 during the first three months of 1996 compared with $25,000 for the same period in 1995. Loans charged off (net of recoveries) were $14,432 in the first three months of 1996, compared to $(23,015) for the same period in 1995. On an annualized basis net loan charge-offs were 0.03% of total loans for the first quarter of 1996 compared with (0.05%) for the same period in 1995. On March 31, 1996 nonperforming assets totalled $3.15 million compared with $2.99 million on March 31, 1995. The March 1996 total consisted of $354 thousand in foreclosed real estate, $354 thousand in a former branch site now listed for sale, and $2.44 million in nonaccrual loans. The March 1995 total consisted of $185 thousand in foreclosed real estate, $354 thousand in a former branch site now listed for sale, and $2.45 million in nonaccrual loans. Loans still accruing interest but past due 90 days or more increased to $652 thousand as of March 31, 1996 compared with $77 thousand on March 31, 1995. The allowance for loan losses on March 31, 1996 was $2.29 million. It represented a multiple of 0.73 times nonperforming assets and 0.94 times nonperforming loans. The allowance for loan losses on March 31, 1996 was 1.20% of loans compared to 1.52% at March 31, 1995. Other Income Other income increased $130,348, or 14%, for the first three months of 1996 over the same period in 1995. Income from fiduciary activities increased 15%. Other service charges, commissions and fees grew due to higher mortgage brokerage income and charge card merchant processing fees. Other Expenses Other expenses decreased $54,790, or 2%, in the first three months of 1996 over 1995. Salaries and employees benefits increased 5% due to normal increases in pay. Furniture and equipment expense increased $12,973, or 6%, due to depreciation on new equipment. These increases were offset by a decrease of $162,683, or 21%, in other operating expenses, primarily due to the reduction in FDIC insurance. The Company plans to open one new full service branch in the third quarter of 1996. Financial Condition At March 31, 1996 total assets were $315.7 million, up from $304.3 million at December 31, 1995. Total loans increased $2.9 million, or 1.6%, federal funds sold increased $7.8 million, or 1517.5%, and investment securities increased $1.8 million, or 1.9%, in 1996. Total deposits increased $8.0 million, or 3.1% in 1996; and interest bearing demand notes increased $791 thousand, or 0.8%, while repurchase agreements, used as a cash management vehicle by commercial customers, decreased $896 thousand, or 5.7%. Capital Resources The Company's capital position remains strong as evidenced by the regulatory capital measurements. At March 31, 1996 the Tier I capital ratio was 15.30%, the total capital ratio was 16.46% and the leverage ratio was 9.90%. These ratios were all well above the regulatory minimum levels of 4.00%, 8.00%, and 3.00%, respectively. Liquidity and Interest Sensitivity Liquidity is the ability of the Company to meet present and future obligations to depositors and borrowers. The liquidity position of the Company is adequate in light of the the increase in short term investment securities and federal funds sold. The Company was liability sensitive as of March 31, 1996. There were $91.2 million more in liabilities than assets subject to repricing within three months. This generally indicates that 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 the savings deposits; 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. The table on page 12 reflects the earlier of the maturity or repricing data for various assets and liabilities as of March 31, 1996. <TABLE> INTEREST SENSITIVITY ANALYSIS <CAPTION> As of March 31, 1996 MATURITY (in thousands) Within 4-12 1-5 Over 5 3 Months Months Years Years Total Uses of funds <S> <C> <C> <C> <C> <C> Federal funds sold.............. 8,299 -- -- -- 8,299 Taxable investments............. 11,272 13,452 48,172 8,287 81,183 Tax-exempt investments.......... 0 0 1,947 11,264 13,211 Total investments............. 19,571 13,452 50,119 19,551 102,693 Loans: Commercial.................... 11,980 1,178 7,461 433 21,052 Tax-exempt.................... 2,129 0 242 376 2,747 Installment................... 2,472 1,418 45,097 3,061 52,048 Real estate................... 27,375 7,936 68,359 10,758 114,428 Other......................... 661 37 -- -- 698 Total loans..................... 44,617 10,569 121,159 14,628 190,973 Total earning assets............ 64,188 24,021 171,278 34,179 293,666 Sources of funds Interest checking deposits...... 49,324 -- -- -- 49,324 Money market deposit accounts... 20,431 -- -- -- 20,431 Regular savings accounts........ 26,850 -- -- -- 26,850 Certificates of deposit......... $100,000 or more.............. 5,351 7,198 4,669 -- 17,218 Other time deposits............. 34,629 37,221 32,048 -- 103,898 Federal funds purchased and securities sold under agreements to repurchase...... 15,140 -- -- -- 15,140 Other borrowed money............ 3,654 -- 49 -- 3,703 Total interest bearing liabiliti 155,379 44,419 36,766 0 236,564 Rate sensitivity GAP............ (91,191) (20,398) 134,512 34,179 57,102 Cumulative GAP.................. (91,191) (111,589) 22,923 57,102 - 12 - PART II - OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) none (b) No Reports on Form 8-K were filed during the first quarter of 1996. 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 May 10, 1996 By: /s/Robert F. Shuford President and Director Principal Executive Officer By: /s/Louis G. Morris Senior Vice President and Treasurer Principal Financial and Accounting Officer </TABLE>