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, 1997 [ ] 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) 728-1200 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, 1997. Class Outstanding at October 31, 1997 Common Stock, $5.00 par value 1,283,086 shares
OLD POINT FINANCIAL CORPORATION FORM 10-Q INDEX PART I - FINANCIAL INFORMATION Page Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . 1 Consolidated Balance Sheets September 30, 1997 and December 31, 1996 . . . . . . . . . 1 Consolidated Statement of Earnings Three months ended September 30, 1997 and 1996 . . . . . . 2 Nine months ended September 30, 1997 and 1996. . . . . . . 2 Consolidated Statement of Cash Flows Nine months ended September 30, 1997 and 1996 . . . . . . 3 Consolidated Statements of Changes in Stockholders' Equity Nine months ended September 30, 1997 and 1996 . . . . . . 4 Notes to Consolidated Financial Statements . . . . . . . . . . . . . 5 Parent Only Balance Sheets September 30, 1997 and December 31, 1996. . . . . . . 6 Parent Only Statement of Earnings Three months ended September 30, 1997 and 1996. . . . 6 Nine months ended September 30, 1996 and 1996 . . . . 6 Parent Only Statement of Cash Flows Three months ended September 30, 1997 and 1996. . . . 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 . . . . . . . . . . . . . . .13 (i)
<TABLE> <CAPTION> PART 1. - FINANCIAL INFORMATION OLD POINT FINANCIAL CORPORATION Consolidated Balance Sheets September 30 December 31, (Unaudited) 1997 1996 Assets <S> <C> <C> Cash and due from banks........................ $ 8,854,736 $ 10,938,067 Interest bearing balances due from banks....... 75,435 50,428 Securities available for sale, at market....... 71,933,242 70,088,789 Securities to be held to maturity.............. 25,974,219 24,967,429 Trading account securities..................... -- -- Federal funds sold............................. 5,163,507 560,915 Loans, total (excluding unearned income)....... 219,320,557 198,584,252 Less reserve for loan losses............... 2,473,438 2,330,029 ----------- ----------- Net loans.............................. 216,847,119 196,254,223 Bank premises and equipment.................... 9,397,974 9,402,579 Other real estate owned........................ 773,864 353,864 Other assets................................... 3,900,715 3,728,410 ----------- ----------- Total assets.............................. $ 342,920,811 $ 316,344,704 =========== =========== Liabilities Noninterest-bearing deposits................... $ 52,735,189 $ 47,533,417 Savings deposits............................... 98,153,576 96,196,174 Time deposits.................................. 131,909,187 119,789,184 ----------- ----------- Total deposits.............................. 282,797,952 263,518,775 Federal funds purchased and securities sold under agreement to repurchase.................. 19,448,202 17,135,126 Interest-bearing demand notes issued to the United States Treasury and other liabilities for borrowed...................... 4,027,445 2,301,267 Other liabilities.............................. 1,418,699 989,636 ----------- ----------- Total liabilities........................... 307,692,298 283,944,804 Stockholders' Equity Common stock, $5.00 par value.................. 6,415,430 6,367,730 1997 1996 Shares authorized.....6,000,000 6,000,000 Shares outstanding....1,283,086 1,273,546 Surplus........................................ 9,693,301 9,345,091 Undivided profits.............................. 18,588,909 16,638,880 Unrealized gain/(loss) on securities .......... 530,873 48,199 ----------- ----------- Total stockholders' equity................. 35,228,513 32,399,900 ----------- ----------- Total liabilities and stockholders' equity. $ 342,920,811 $ 316,344,704 ============ =========== See accompanying notes </TABLE> 1
<TABLE> <CAPTION> OLD POINT FINANCIAL CORPORATION Three Months Ended Nine Months Ended Consolidated Statements of Earnings September 30, September 30, (Unaudited) 1997 1996 1997 1996 Interest Income <S> <C> <C> <C> <C> Interest and fees on loans..................... $ 4,813,519 $ 4,460,152 $ 13,863,861 $ 13,054,996 Interest on federal funds sold................. 86,515 28,963 189,410 151,757 Interest on securities: Taxable..................................... 1,133,518 1,200,303 3,390,617 3,571,490 Exempt from federal income tax.............. 339,442 226,949 919,222 611,716 Interest on trading account securities......... 0 0 0 0 ---------- --------- --------- --------- Total interest on securities............. 1,472,960 1,427,252 4,309,839 4,183,206 ---------- --------- --------- --------- Total interest income...................... 6,372,994 5,916,367 18,363,110 17,389,959 Interest Expense Interest on savings deposits................... 700,397 684,902 2,065,006 2,024,800 Interest on time deposits...................... 1,794,177 1,640,881 5,111,683 4,957,966 Interest on federal funds purchased and securities sold under agreement to repurchase. 243,406 189,489 620,535 538,522 Interest on demand notes (note balances) issued United States Treasury and on other borrowed money........................ 22,030 21,386 73,727 60,871 ---------- --------- --------- --------- Total interest expense..................... 2,760,010 2,536,658 7,870,951 7,582,159 Net interest income............................ 3,612,984 3,379,709 10,492,159 9,807,800 Provision for loan losses...................... 100,000 150,000 300,000 450,000 ---------- --------- --------- --------- Net interest income after provision for loan loss................................. 3,512,984 3,229,709 10,192,159 9,357,800 Other Income Income from fiduciary activities............... 434,805 389,838 1,304,505 1,169,514 Service charges on deposit accounts............ 431,440 455,226 1,284,963 1,426,909 Other service charges, commissions and fees.... 153,252 85,942 424,365 258,891 Other operating income......................... 37,530 28,951 195,356 193,766 Income from trading account.................... 0 0 0 0 Security gains (losses)........................ 0 1,659 (4,068) 1,631 ---------- --------- --------- --------- Total other income......................... 1,057,027 961,616 3,205,121 3,050,711 Other Expenses Salaries and employee benefits................. 1,941,618 1,849,979 5,757,690 5,537,206 Occupancy expense of Bank premises............. 207,132 193,075 624,658 562,456 Furniture and equipment expense................ 277,825 264,261 814,473 761,733 Other operating expenses....................... 761,831 734,914 2,346,816 2,011,738 ---------- --------- --------- --------- Total other expenses....................... 3,188,406 3,042,229 9,543,637 8,873,133 ---------- --------- --------- --------- Income before taxes............................ 1,381,605 1,149,096 3,853,643 3,535,378 Applicable income taxes ....................... 335,600 312,600 970,276 982,874 ---------- --------- --------- --------- Net income..................................... $ 1,046,005 $ 836,496 $ 2,883,367 $ 2,552,504 ========== ========== ========== ========== Per Share Based on weighted average number of common shares outstanding.................... 1,282,748 1,273,542 1,279,678 1,273,539 Net income..................................... $ 0.82 $ 0.66 $ 2.25 $ 2.00 See accompanying notes 2 </TABLE>
<TABLE> <CAPTION> OLD POINT FINANCIAL CORPORATION Nine Months Ended Consolidated Statements of Cash Flows September 30, (Unaudited) 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES <S> <C> <C> Net income................................................ $ 2,883,367 $ 2,552,504 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................... 703,477 649,216 Provision for loan losses............................... 300,000 450,000 (Gains) loss on sale of investment securities, net...... 4,068 (1,631) Net amortization & accretion of securities available for sale..................................... 310,772 547,188 Net (increase) decrease in trading account.............. 0 0 (Increase) in other real estate owned................... (565,000) 0 (Increase) decrease in other assets (net of tax effect of FASB 115 adjustment)............ (420,955) 226,562 Increase (decrease) in other liabilities................ 429,063 72,044 Net cash provided by operating activities............. 3,644,791 4,495,883 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities ................................ (18,401,556) (25,044,655) Proceeds from maturities & calls of securities ......... 9,749,000 20,870,000 Proceeds from sales of available-for-sale securities.... 6,217,797 2,003,437 Proceeds from sales of held-to-maturity securities ..... 0 0 Loans made to customers................................. (93,637,350) (70,399,973) Principal payments received on loans.................... 72,744,454 62,808,808 Proceeds from sales of other real estate owned.......... 145,000 529,783 Purchases of premises and equipment..................... (698,872) (1,865,991) (Increase) decrease in federal funds sold............... (4,602,592) (748,602) ----------- ------------ Net cash provided by (used in) investing activities... (28,484,119) (11,847,193) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in non-interest bearing deposits.... 5,201,772 5,695,042 Increase (decrease) in savings deposits................. 1,957,402 562,839 Proceeds from the sale of certificates of deposit....... 46,257,128 33,434,522 Payments for maturing certificates of deposit........... (34,137,125) (31,899,210) Increase (decrease) in federal funds purchased & repurchase agreements.................................. 2,313,076 (2,003,157) Increase (decrease) in other borrowed money............. 1,726,178 3,479,342 Proceeds from issuance of common stock.................. 230,431 25 Dividends paid.......................................... (767,859) (636,769) ---------- --------- Net cash provided by financing activities............. 22,781,003 8,632,634 Net increase (decrease) in cash and due from banks.... (2,058,324) 1,281,324 Cash and due from banks at beginning of period........ 10,988,495 10,931,545 ---------- ---------- Cash and due from banks at end of period.............. $ 8,930,171 $ 12,212,869 ========= ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash payments for: Interest.............................................. $ 7,780,638 $ 7,652,673 Income taxes.......................................... 1,025,000 1,025,000 </TABLE> See accompanying notes - 3 -
<TABLE> <CAPTION> OLD POINT FINANCIAL CORPORATION STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) Unrealized Common Stock Undivided Gain/(Loss) Shares Amount Surplus Profits On Securities Total FOR NINE MONTHS ENDED SEPTEMBER 30, 1997 <S> <C> <C> <C> <C> <C> <C> Balance at beginning of period. 1,273,546 $ 6,367,730 $ 9,345,091 $ 16,638,880 $ 48,199 $ 32,399,900 Net income..................... -- -- -- 2,883,367 -- 2,883,367 Sale of common stock........... 9,540 47,700 348,210 (165,479) -- 230,431 Cash dividends................. -- -- -- (767,859) -- (767,859) Increase in unrealized gain on securities................. -- -- -- -- 482,674 482,674 --------- --------- --------- ---------- -------- ---------- Balance at end of period....... 1,283,086 $ 6,415,430 $ 9,693,301 $ 18,588,909 $ 530,873 $ 35,228,513 FOR NINE MONTHS ENDED SEPTEMBER 30, 1996 Balance at beginning of period. 1,273,537 $ 6,367,685 $ 9,344,798 $ 14,085,650 $ 529,784 $ 30,327,917 Net income..................... -- -- -- 2,552,504 -- 2,552,504 Sale of common stock........... 9 45 293 (313) -- 25 Cash dividends................. -- -- -- (636,770) -- (616,770) Increase in unrealized loss on securities................. -- -- -- -- (681,591) (681,591) --------- --------- --------- ---------- -------- ---------- Balance at end of period....... 1,273,546 $ 6,367,730 $ 9,345,091 $ 16,001,071 ($151,807) $ 31,562,085 See accompanying notes -4- </TABLE>
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 1996 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. 5
<TABLE> <CAPTION> OLD POINT FINANCIAL CORPORATION Parent only Balance Sheets September 30, December 31, (Unaudited) 1997 1996 Assets <S> <C> <C> Cash in bank................................ $ 301,820 $ 142,683 Investment Securities....................... 1,878,589 1,675,761 Total Loans................................. 0 49,884 Investment in Subsidiary.................... 33,046,926 30,456,307 Equipment................................... 0 14,411 Other assets................................ 7,278 60,854 --------- --------- Total Assets................................ $ 35,234,613 $ 32,399,990 ========== ========== Liabilities and Stockholders' Equity Total Liabilities........................... $ 6,100 $ 0 Stockholders' Equity........................ 35,228,513 32,399,900 ---------- ---------- Total Liabilities & Stockholders' Equity.... $ 35,234,613 $ 32,399,900 </TABLE> <TABLE> <CAPTION> OLD POINT FINANCIAL CORPORATION Three Months Ended: Nine Months Ended: Parent only Income Statements September 30, September 30, (Unaudited) 1997 1996 1997 1996 Income <S> <C> <C> <C> <C> Cash dividends from Subsidiary.............. $ 250,000 $ 250,000 $ 750,000 $ 750,000 Interest and fees on loans.................. 0 1,074 579 3,253 Interest income from investment securities.. 26,978 23,742 78,683 70,563 Gains (losses) from sale of investment securities...................... 0 0 0 0 Other income................................ 0 0 0 0 ------- ------- ------- ------- Total Income................................ 276,978 274,816 829,262 823,816 Expenses Salaries and employee benefits.............. 0 48,514 0 148,062 Other expenses.............................. 10,192 11,650 42,706 48,934 ------- ------- ------- ------- Total Expenses.............................. 10,192 60,164 42,706 196,996 ------- ------- ------- ------- Income before taxes & undistributed net income of subsidiary................ 266,786 214,652 786,556 626,820 Income tax.................................. 5,600 (12,400) 13,000 (42,200) ------- ------- ------- ------- Net income before undistributed net income of subsidiary.................. 261,186 227,052 773,556 669,020 Undistributed net income of subisdiary...... 784,819 609,444 2,109,811 1,883,484 ------- ------- ------- ------- Net Income.................................. $ 1,046,005 $ 836,496 $ 2,883,367 $ 2,552,504 ========= ======= ========= ========= - 6 - </TABLE>
<TABLE> <CAPTION> OLD POINT FINANCIAL CORPORATION Nine Months Ended: Parent only Statements of Cash Flows September 30, (Unaudited) 1997 1996 Cash Flows from Operating Activities: <S> <C> <C> Net Income.................................. $ 2,883,367 $ 2,552,504 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsidiary........................... (2,109,811) (1,883,484) Depreciation.............................. 0 2,664 Gains(losses) on sale of securities [net] 0 0 (Increase) Decrease in other assets...... 52,614 16,531 Increase (decrease in other liabilities) 6,100 0 ---------- ---------- Net cash provided by operating activities... 832,270 688,215 Cash flows from investing activities: (Increase)decrease in investment securities. (200,000) 0 Sale of equipment........................... 14,411 0 Purchase of equipment....................... 0 0 Repayment of loans by customers............. 49,884 1,153 ---------- ---------- Net cash provided by investing activities... (135,705) 1,153 Cash flows from financing activities: Proceeds from issuance of common stock...... 230,431 25 Dividends paid.............................. (767,859) (636,769) ---------- ---------- Net cash provided by financing activities... (537,428) (636,744) Net increase (decrease) in cash & due from banks............................. 159,137 52,624 Cash & due from banks at beginning of period 142,683 122,263 ---------- ---------- Cash & due from banks at end of period...... $ 301,820 $ 174,887 ========== ========== - 7 - </TABLE>
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Summary Net income for the third quarter of 1997 increased 25% to $1,046,005 from $836,496 for the comparable period in 1996. Earnings per share were $0.82 in the third quarter of 1997 compared with $0.66 in 1996. For the nine months ended September 30, 1997 net income increased 13% to $2,883,367 from $2,552,504 in 1996. Earnings per share were $2.25 for the first nine months of 1997 compared with $2.00 in 1996. Return on average assets was 1.24% for the third quarter of 1997 and 1.06% for the comparable period in 1996. Return on average equity was 11.96% for the third quarter of 1997 and 10.66% for the third quarter of 1996. For the nine months ended September 30, 1997 and 1996 return on average assets was 1.17% and 1.09% respectively. Return on average equity was 11.35% in 1997 and 10.99% in 1996. Net Interest Income Net interest income, on a fully tax equivalent basis, increased $286 thousand, or 8.1%, for the third quarter of 1997 over 1996. Average earning assets increased 9.1% 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 4.82% in 1996 to 4.78% in 1997. For the nine months ended September 30, 1997 net interest income increased $826 thousand, or 8.1%, over the comparable period in 1996. Average earning assets increased 6.3% and the net interest yield increased from 4.69% in 1996 to 4.77% in 1997. This increase in earning assets is primarily due to loan growth. Based on a nine month average, Commercial loans grew by 16.9%, Real Estate by 5.5% and Installment loans by 4.5% over 1996. During 1997 there has been a shift in investment securities from taxable to tax exempt which have higher tax equivalent yields. Interest rates on deposits decreased during 1997 over the comparable period in 1996 contributing to the increase in the net interest yield. Page 9 shows an analysis of average earning assets, interest bearing liabilities and rates and yields. -8-
<TABLE> <CATION> _________________________________________ ________________________________________________________________________________ OLD POINT FINANCIAL CORPORATION NET INTEREST INCOME ANALYSIS For the quarter ended September 30, (Fully taxable equivalent basis) * 1997 1996 _________________________________________ ____________________________________ ____________________________________ Dollars in thousands Average Average Interest Rates Interest Rates Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid _________________________________________ ____________________________________ ____________________________________ <S> <C> <C> <C> <C> <C> <C> Loans (net of unearned income)**......... $214,992 4,835 9.00% $193,956 4,485 9.25% Investment securities:*** Taxable................................ 72,088 1,131 6.28% 79,251 1,200 6.06% Tax-exempt............................. 25,414 515 8.11% 16,413 344 8.38% ________ ________ ________ ________ Total investment securities.......... 97,502 1,646 6.75% 95,664 1,544 6.46% Federal funds sold....................... 6,009 86 5.72% 2,308 29 5.03% ________ ________ ________ ________ Total earning assets................... $318,503 $6,567 8.25% $291,928 $6,058 8.30% Time and savings deposits: Interest-bearing transaction accounts.. $25,446 $140 2.20% $49,364 $300 2.43% Money market deposit accounts.......... 48,550 381 3.14% 21,911 205 3.74% Savings accounts....................... 25,954 179 2.76% 25,997 180 2.77% Certificates of deposit, $100,000 or more............................... 20,655 307 5.95% 17,448 222 5.09% Other certificates of deposit.......... 110,022 1,487 5.41% 103,119 1,419 5.50% ________ ________ ________ ________ Total time and savings deposits...... 230,627 2,494 4.33% 217,839 2,326 4.27% Federal funds purchased and securities sold under agreement to repurchase..... 20,301 244 4.81% 15,661 189 4.83% Other short term borrowings.............. 1,560 22 5.64% 1,598 22 5.51% ________ ________ ________ ________ Total interest bearing liabilities..... $252,488 2,760 4.37% $235,098 2,537 4.32% Net interest income/yield................ $3,807 4.78% $3,521 4.82% ===== ==== ===== ===== </TABLE>
<TABLE> <CAPTION> ________________________________________________________________________________ For the nine months ended September 30, 1997 1996 ____________________________________ ____________________________________ Average Average Interest Rates Interest Rates Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid _________________________________________ ____________________________________ ____________________________________ <S> <C> <C> <C> <C> <C> <C> Loans (net of unearned income)**......... $207,666 $13,928 8.94% $191,828 $13,132 9.13% Investment securities:*** Taxable................................ 72,915 3,388 6.20% 79,496 3,571 5.99% Tax-exempt............................. 22,876 1,393 8.12% 14,552 927 8.49% ________ ________ ________ ________ Total investment securities.......... 95,791 4,781 6.65% 94,048 4,498 6.38% Federal funds sold....................... 4,554 189 5.53% 3,889 152 5.21% ________ ________ ________ ________ Total earning assets................... $308,011 $18,898 8.18% $289,765 $17,782 8.18% Time and savings deposits: Interest-bearing transaction accounts.. $25,891 $428 2.20% $49,870 $903 2.41% Money market deposit accounts.......... 47,405 1,108 3.12% 20,774 578 3.71% Savings accounts....................... 25,816 529 2.73% 26,544 544 2.73% Certificates of deposit, $100,000 or more............................... 18,433 787 5.69% 16,991 680 5.34% Other certificates of deposit.......... 107,561 4,325 5.36% 103,238 4,278 5.53% ________ ________ ________ ________ Total time and savings deposits...... 225,106 7,177 4.25% 217,417 6,983 4.28% Federal funds purchased and securities sold under agreement to repurchase..... 17,631 621 4.70% 15,160 538 4.73% Other short term borrowings.............. 1,805 74 5.47% 1,531 61 5.31% ________ ________ ________ ________ Total interest bearing liabilities..... $244,542 7,872 4.29% $234,108 7,582 4.32% Net interest income/yield................ $11,026 4.77% $10,200 4.69% ====== ==== ====== ==== </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. *** All investment securities are reported at amortized cost for this schedule. - 9 -
Provision/Allowance for Loan Losses The provision for loan losses was $300,000 for the first nine months of 1997, down significantly over the comparable period in 1996. Loans charged off (net of recoveries) were $156,591 in the first nine months of 1997, compared with $421,285 for the same period in 1996. During 1994 and 1995 there was significant growth in the Installment loan portfolio especially in indirect dealer loans. In the first nine months of 1996, $337,518 of these dealer loans were charged off net of recoveries. Since the beginning of 1996 the underwriting standards for dealer loans has been raised thus reducing the loans charged off. On an annualized basis net loan charge-offs were 0.10% of total loans for the first nine months of 1997 compared with .29% for the same period in 1996. On September 30, 1997 nonperforming assets totalled $1.84 million compared with $2.02 million on September 30, 1996. The September 1997 total consisted of $420 thousand in foreclosed real estate, $354 thousand in a former branch site now listed for sale, and $1.063 million in nonaccrual loans. The September 1996 total consisted of $70 thousand in foreclosed real estate, $354 thousand in the former branch site, and $1.6 million in nonaccrual loans. Loans still accruing interest but past due 90 days or more increased to $769 thousand as of September 30, 1997 compared with $641 million on September 30, 1996. The allowance for loan losses on September 30, 1997 was $2.47 million. It represented a multiple of 1.34 times nonperforming assets and 2.32 times nonperforming loans. The allowance for loan losses on September 30, 1997 was 1.13% of loans compared to 1.17% at September 30, 1996. Other Income Other income increased $95,411, or 10%, for the third quarter of 1997 over the same period in 1996. Income from fiduciary activities increased 12% over the same period in 1996 due to higher trust assets under management. For the nine months ended September 30, 1997 other income increased $154,410 or 5% from 1996. The higher income in 1997 was primarily a result of increases in trust department, merchant processing, debit card and ATM fee income. The company began charging a $1.00 surcharge on non-customer ATM transactions in 1997. Other Expenses Other expenses increased $146,177, or 5%, in the third quarter of 1997 over 1996. Salaries and employee benefits increased 5% due to normal increases in pay and increased health and insurance costs. Occupancy expenses were up 7% due to the opening of the new Kiln Creek Branch in August 1996. Furniture and equipment expenses increased 5% due to higher depreciation on computer equipment. Other operating expenses were up 4%. For the nine months ended September 30, 1997 other expenses increased $670,504 or 8%, from 1996, primarily due to higher legal expenses associated with the company's defense of a lawsuit. The company believes it will ultimately prevail in this lawsuit. 10
Financial Condition At September 30, 1997 total assets were $342.9 million, up 8% from $316.3 million at December 31, 1996. Total loans grew $20.7 million, or 10% and investment securities and federal funds sold grew $7.4 million, or 8%, in 1997. Total deposits increased $19.3 million, or 7% in 1997 and demand note balances to the U. S. Treasury increased $1.7 million to $4.0 from $2.3 million at year end 1996. Capital Resources The Company's capital position remains strong as evidenced by the regulatory capital measurements. At September 30, 1997 the Tier I capital ratio was 14.92%, the total capital ratio was 15.99% and the leverage ratio was 10.23%. 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. As loan demand increases, liquidity will be provided by liquidation of short term investment securities as well as other means of financing such as purchase of federal funds and demand note to the U.S. Treasury. The Company was liability sensitive as of September 30, 1997. There were $85.183 million more in liabilities than assets subject to repricing within three months. 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 September 30, 1997. General The Company has started construction of a 15,000 square-foot building in Oyster Point of Newport News. This facility will house the Old Point Commercial Lending Department as well as the Real Estate Lending Department. The new building will also be home to the Trust and Financial Services Department. The building will be ready for occupancy mid 1998. Management has developed and initiated a Year 2000 project plan to determine which of the Company's computer hardware and software is year 2000 compliant. The plan is a five phase project consisting of Awareness, Assessment, Renovation, Validation and Implementation Phases. The Awareness Phase is completed and the Assessment Phase is expected to be completed by December 31, 1997. During the first six months of 1998 the Company expects to have identified all hardware and software that is not Year 2000 compliant. At this time management does not expect Year 2000 compliance to have an adverse material impact on the Company. 11
<TABLE> <CAPTION> INTEREST SENSITIVITY ANALYSIS As of September 30, 1997 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.............. 5,164 -- -- -- 5,164 Taxable investments............. 9,340 13,122 38,106 9,887 70,455 Tax-exempt investments.......... -- -- 826 26,626 27,452 ------- ------- ------- ------- ------- Total investments............. 14,504 13,122 38,932 36,513 103,071 Loans: Commercial.................... 32,420 10,534 24,489 2,462 69,905 Tax-exempt.................... 1,884 45 140 117 2,186 Installment................... 4,547 12,803 36,153 2,401 55,904 Real estate................... 20,546 21,021 36,537 12,542 90,646 Other......................... 286 -- 394 -- 680 ------- ------- ------- ------- ------- Total loans..................... 59,683 44,403 97,713 17,522 219,321 ------- ------- ------- ------- ------- Total earning assets............ 74,187 57,525 136,645 54,035 322,392 Sources of funds Interest checking deposits...... 18,197 -- -- -- 18,197 Money market deposit accounts... 54,378 -- -- -- 54,378 Regular savings accounts........ 25,579 -- -- -- 25,579 Certificates of deposit......... $100,000 or more.............. 6,423 9,865 5,864 -- 22,152 Other time deposits............. 31,345 38,205 40,207 -- 109,757 Federal funds purchased and securities sold under agreements to repurchase...... 19,448 -- -- -- 19,448 Other borrowed money............ 4,000 -- 27 -- 4,027 ------- ------- ------- ------- ------- Total interest bearing liabilities 159,370 48,070 46,098 0 253,538 Rate sensitivity GAP............ (85,183) 9,455 90,547 54,035 68,854 Cumulative GAP.................. (85,183) (75,728) 14,819 68,854 </TABLE> - 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 third quarter of 1997 13
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 14, 1997 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