UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period Ended June 30, 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 June 30, 2001. Class Outstanding at June 30, 2001 Common Stock, $5.00 par value 2,590,540 shares <page> OLD POINT FINANCIAL CORPORATION FORM 10-Q INDEX PART I - FINANCIAL INFORMATION Page Item 1. Financial Statements 1 Consolidated Balance Sheets June 30, 2001 and December 31, 2000...........................1 Consolidated Statement of Earnings Three months ended June 30, 2001 and 2000.....................2 Six months ended June 30, 2001 and 2000.......................2 Consolidated Statement of Cash Flows Six months ended June 30, 2001 and 2000.......................3 Consolidated Statements of Changes in Stockholders' Equity Six months ended June 30, 2001 and 2000.......................4 Notes to Consolidated Financial Statements...........................5 Parent Only Balance Sheets June 30, 2001 and December 31, 2000.....................6 Parent Only Statement of Earnings Three months ended June 30, 2001 and 2000...............6 Six months ended June 30, 2001 and 2000.................6 Parent Only Statement of Cash Flows Six months ended June 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.................................13 (i) <page> <table> <caption> - -------------------------------------------------------------------------------------------------------- Unaudited June 30, December 31, Consolidated Balance Sheets 2001 2000 - -------------------------------------------------------------------------------------------------------- <s> <c> <c> Assets Cash and due from banks........................................... $ 10,822,733 $ 10,770,982 Interest bearing balances due from banks 280,744 272,790 Investments: Securities available for sale, at market........................ 86,048,745 77,096,247 Securities to be held to maturity............................... 43,996,326 46,240,703 Trading account securities........................................ - - Federal funds sold................................................ 15,524,051 5,397,087 Loans, total ..................................................... 333,418,899 319,909,569 Less reserve for loan losses.................................. 3,540,339 3,648,819 ------------ ------------ Net loans................................................. 329,878,560 316,260,750 Bank premises and equipment....................................... 14,889,014 15,059,350 Other real estate owned........................................... 1,105,000 750,000 Other assets...................................................... 5,154,144 5,248,347 ------------ ------------ Total assets................................................. $507,699,317 $477,096,256 ============ ============ Liabilities Noninterest-bearing deposits...................................... $ 69,348,917 $ 65,055,835 Savings deposits.................................................. 135,602,648 127,659,896 Time deposits..................................................... 194,170,505 182,063,287 ------------ ------------ Total deposits................................................. 399,122,070 374,779,018 Federal funds purchased and securities sold under agreement to repurchase....................................... 26,148,353 27,038,033 Interest-bearing demand notes issued to the United States Treasury and other liabilities for borrowed money.............. 5,893,552 2,088,637 Federal Home Loan Bank 25,000,000 25,000,000 Other liabilities................................................. 2,399,898 1,693,083 ------------ ------------ Total liabilities.............................................. 458,563,873 430,598,771 Stockholders' Equity Common stock, $5.00 par value..................................... $ 12,952,700 $ 12,952,700 2001 2000 Shares authorized...... 10,000,000 10,000,000 Shares outstanding..... 2,590,540 2,590,540 Surplus........................................................... 10,288,301 10,288,301 Undivided profits................................................. 25,119,321 23,297,402 Unrealized gain/(loss) on securities.............................. 775,122 (40,918) ------------ ------------ Total stockholders' equity.................................... 49,135,444 46,497,485 ------------ ------------ Total liabilities and stockholders' equity.................... $507,699,317 $477,096,256 ============ ============ </table> -1- <page> <table> <caption> - ----------------------------------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended Consolidated Statements of Earnings June 30, June 30, 2001 2000 2001 2000 - ----------------------------------------------------------------------------------------------------------------------- <s> <c> <c> <c> <c> Interest Income Interest and fees on loans $ 6,941,909 $ 6,385,334 $13,872,691 $12,331,676 Interest on federal funds sold 208,825 29,843 379,688 49,284 Interest on securities: Interest on United States Treasury securities (taxable) 22,944 15,956 46,941 31,856 Interest on obligations of other United States Government agencies (taxable) 969,544 976,883 1,874,342 1,954,329 Interest on obligations of states and political subdivisions (tax exempt) 625,747 688,545 1,261,210 1,381,973 Interest on obligations of states and political subdivisions (taxable) 19,535 19,907 39,441 39,813 Interest on trading account securities - - - - Dividends and interest on all other securities 85,909 87,344 177,231 167,958 ----------- ----------- ----------- ----------- Total interest on securities 1,723,679 1,788,635 3,399,165 3,575,929 Trading account securities - - - - ----------- ----------- ----------- ----------- Total interest income 8,874,413 8,203,812 17,651,544 15,956,889 Interest Expense Interest on savings deposits 791,998 952,789 1,722,392 1,927,416 Interest on time deposits 2,836,595 2,333,873 5,674,710 4,584,347 Interest on federal funds purchased and securities sold under agreement to repurchase 227,713 369,994 542,521 659,428 Interest on Federal Home Loan Bank advances 383,590 343,458 762,965 513,541 Interest on demand notes (note balances) issued to the United States Treasury and on other borrowed money 17,566 35,586 43,335 62,310 ----------- ----------- ----------- ----------- Total interest expense 4,257,462 4,035,700 8,745,923 7,747,042 Net interest income 4,616,951 4,168,112 8,905,621 8,209,847 Provision for loan losses 250,000 150,000 400,000 325,000 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 4,366,951 4,018,112 8,505,621 7,884,847 Other Income Income from fiduciary activities 697,238 630,000 1,319,168 1,260,000 Service charges on deposit accounts 619,502 553,458 1,220,181 1,094,733 Other service charges, commissions and fees 176,490 163,292 385,770 369,824 Other operating income 109,934 49,127 159,777 100,998 Security gains (losses) - 6,734 - 6,734 Trading account income - - - - ----------- ----------- ----------- ----------- Total other income 1,603,164 1,402,611 3,084,896 2,832,289 Other Expenses Salaries and employee benefits 2,489,750 2,286,757 4,893,163 4,592,608 Occupancy expense of Bank premises 283,857 248,237 546,989 514,605 Furniture and equipment expense 401,838 391,104 821,503 766,979 Other operating expenses 1,024,630 933,224 1,964,081 1,779,174 ----------- ----------- ----------- ----------- Total other expenses 4,200,075 3,859,322 8,225,736 7,653,366 ----------- ----------- ----------- ----------- Income before taxes 1,770,040 1,561,401 3,364,781 3,063,770 Applicable income taxes 412,475 319,000 765,700 606,000 ----------- ----------- ----------- ----------- Net income $ 1,357,565 $ 1,242,401 $ 2,599,081 $ 2,457,770 =========== =========== =========== =========== Per Share Based on weighted average number of common shares outstanding 2,590,540 2,583,401 2,590,540 2,583,399 Basic Earnings per Share 0.52 0.48 1.00 0.95 Diluted Earnings per Share 0.52 0.48 1.00 0.95 </table> -2- <page> <table> <caption> - ----------------------------------------------------------------------------------------------- OLD POINT FINANCIAL CORPORATION Six Months Ended Consolidated Statements of Cash Flows June 30, (Unaudited) 2001 2000 - ----------------------------------------------------------------------------------------------- <s> <c> <c> CASH FLOWS FROM OPERATING ACTIVITIES Net income...................................................... $ 2,599,081 $ 2,457,770 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................. 721,550 630,526 Provision for loan losses..................................... 400,000 325,000 (Gains) loss on sale of investment securities, net............ 0 (6,734) Net amortization & accretion of securities ................... 18,207 36,468 Net (increase) decrease in trading account.................... 0 0 (Increase) in other real estate owned......................... (355,000) 0 (Increase) decrease in other assets (net of tax effect of FASB 115 adjustment)................ (326,181) (725,568) Increase (decrease) in other liabilities...................... 706,815 692,114 ------------ ------------ Net cash provided by operating activities................... 3,764,472 3,409,576 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities ...................................... (19,284,333) (712,037) Proceeds from maturities & calls of securities ............... 13,094,429 730,000 Proceeds from sales of available - for - sale securities...... 700,000 0 Proceeds from sales of held - to - maturity securities........ 0 0 Loans made to customers....................................... (87,926,489) (86,656,197) Principal payments received on loans.......................... 73,908,679 58,032,434 Proceeds from sales of other real estate owned................ 0 0 Purchases of premises and equipment........................... (551,214) (939,354) (Increase) decrease in federal funds sold..................... (10,126,964) (8,742,027) ------------ ------------ Net cash provided by (used in) investing activities......... (30,185,892) (38,287,181) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in non-interest bearing deposits.......... 4,293,082 9,417,789 Increase (decrease) in savings deposits....................... 7,942,752 (4,833,560) Proceeds from the sale of certificates of deposit............. 38,280,783 33,126,846 Payments for maturing certificates of deposit................. (26,173,565) (32,044,534) Increase (decrease) in federal funds purchased & repurchase agreements........................................ (889,680) 411,622 Increase (decrease) in Federal Home Loan Bank advances........ 0 27,000,000 Increase (decrease) in other borrowed money................... 3,804,915 3,081,808 Proceeds from issuance of common stock........................ 0 14 Dividends paid................................................ (777,162) (723,352) ------------ ------------ Net cash provided by financing activities................... 26,481,125 35,436,633 Net increase (decrease) in cash and due from banks.......... 59,705 559,028 Cash and due from banks at beginning of period.............. 11,043,772 10,400,337 ------------ ------------ Cash and due from banks at end of period.................... $ 11,103,477 $ 10,959,365 ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash payments for: Interest.................................................... $ 8,633,601 $ 7,525,157 Income taxes................................................ 775,000 650,000 </table> See accompanying notes -3- <page> <table> <caption> - ----------------------------------------------------------------------------------------------------------------------------------- OLD POINT FINANCIAL CORPORATION STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Unaudited Accumulated Other Total Common Stock Par Capital Retained Comprehensive Stockholder's Shares Value Surplus Earnings Income(Loss) Equity - ----------------------------------------------------------------------------------------------------------------------------------- <s> <c> <c> <c> <c> <c> <c> FOR SIX MONTHS ENDED JUNE 30, 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............................ - - - 2,599,081 - 2,599,081 Increase (decrease) in unrealized gain on investment securities - - - - 816,040 816,040 --------- ------------ ------------ -------------- ------------ ------------ Total Comprehensive Income 2,599,081 816,040 3,415,121 Sale of common stock.................... - - - - - - Cash dividends............... .......... - - - (777,162) - (777,162) --------- ------------ ------------ -------------- ------------ ------------ Balance at end of period................ 2,590,540 $ 12,952,700 $ 10,288,301 $ 25,119,321 $ 775,122 $ 49,135,444 FOR SIX MONTHS ENDED JUNE 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............................ - - - 2,457,770 - 2,457,770 Increase (decrease) in unrealized gain on investment securities - - - - 27,929 27,929 --------- ------------ ------------ -------------- ------------ ------------ Total Comprehensive Income 2,457,770 27,929 2,485,699 Sale of common stock.................... 139 695 2,084 (2,765) - 14 Cash dividends............... .......... - - - (723,352) - (723,352) --------- ------------ ------------ -------------- ------------ ------------ Balance at end of period................ 2,583,401 $ 12,917,005 $ 10,188,069 $ 21,405,925 $ (1,934,961) $ 42,576,038 </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 June 30, December 31, (Unaudited) 2001 2000 - ---------------------------------------------------------------------------------- <s> <c> <c> Assets Cash in bank........................................ $ 62,467 $ 225,339 Investment Securities............................... 2,305,000 2,170,000 Total Loans......................................... 0 0 Investment in Subsidiaries.......................... 46,681,599 44,089,034 Equipment........................................... 0 0 Other assets........................................ 86,378 13,112 ------------ ------------ Total Assets........................................ $ 49,135,444 $ 46,497,485 ============ ============ Liabilities and Stockholders' Equity Total Liabilities................................... $ 0 $ 0 Stockholders' Equity................................ 49,135,444 46,497,485 ------------ ------------ Total Liabilities & Stockholders' Equity............ $ 49,135,444 $ 46,497,485 ============ ============ <caption> - ------------------------------------------------------------------------------------------------------------------- OLD POINT FINANCIAL CORPORATION Three Months Ended: Six Months Ended: Parent only Income Statements June 30, June 30, (Unaudited) 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------------------- <s> <c> <c> <c> <c> Income Cash dividends from Subsidiary...................... $ 425,000 $ 400,000 $ 850,000 $ 800,000 Interest and fees on loans.......................... 0 0 0 0 Interest income from investment securities.......... 28,980 29,594 60,336 58,567 Gains (losses) from sale of investment securities... 0 0 0 0 Other income........................................ 36,000 36,000 72,000 72,000 ------------ ------------ -------------- ------------- Total Income........................................ 489,980 465,594 982,336 930,567 Expenses Salaries and employee benefits...................... 58,589 58,188 120,603 119,758 Other expenses...................................... 40,736 39,968 73,176 87,189 ------------ ------------ -------------- ------------- Total Expenses...................................... 99,325 98,156 193,779 206,947 ------------ ------------ -------------- ------------- Income before taxes & undistributed net income of subsidiaries...................... 390,655 367,438 788,557 723,620 Income tax.......................................... (18,225) (18,000) (34,000) (38,000) ------------ ------------ -------------- ------------- Net income before undistributed net income of subsidiaries........................ 408,880 385,438 822,557 761,620 Undistributed net income of subsidiaries............ 948,685 856,963 1,776,524 1,696,150 ------------ ------------ -------------- ------------- Net Income.......................................... $ 1,357,565 $ 1,242,401 $ 2,599,081 $ 2,457,770 ============ ============= ============= ============= </table> -6- <page> <table> <caption> - ----------------------------------------------------------------------------------- OLD POINT FINANCIAL CORPORATION Six Months Ended: Parent only Statements of Cash Flows June 30, (Unaudited) 2001 2000 - ----------------------------------------------------------------------------------- <s> <c> <c> Cash Flows from Operating Activities: Net Income.......................................... $ 2,599,081 $ 2,457,770 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsidiary.... (1,776,525) (1,696,151) Depreciation...................................... 0 0 Gains(losses) on sale of securities [net]....... 0 0 (Increase) Decrease in other assets............. (73,266) (29,261) Increase (decrease in other liabilities)........ 0 0 ------------ ------------- Net cash provided by operating activities........... 749,290 732,358 Cash flows from investing activities: (Increase)decrease in investment securities......... (135,000) 30,000 Investment in subsidiaries .................. 0 0 Sale of equipment................................... 0 0 Repayment of loans by customers..................... 0 0 ------------ ------------- Net cash provided by investing activities........... (135,000) 30,000 Cash flows from financing activities: Proceeds from issuance of common stock.............. 0 15 Dividends paid...................................... (777,162) (723,352) ------------ ------------- Net cash provided by financing activities........... (777,162) (723,337) Net increase (decrease) in cash & due from banks.... (162,872) 39,021 Cash & due from banks at beginning of period........ 225,339 59,502 ------------ ------------- Cash & due from banks at end of period.............. $ 62,467 $ 98,523 ============ ============= </table> -7- <page> Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Earnings Summary - ---------------- Net income for the second quarter of 2001 increased 9.27% to $1,357,565 from $1,242,401 for the comparable period in 2000. Basic earnings per share were $0.52 in the second quarter of 2001 compared with $0.48 in 2000. For the six months ended June 30, 2001 net income increased 5.75% to $2,599,081 from $2,457,770 in 2000. Basic earnings per share were $1.00 for the first six months of 2001 compared with $.95 in 2000. Return on average assets was 1.08% for the second quarter of 2001 and 1.09% for the comparable period in 2000. Return on average equity was 11.16% for the second quarter of 2001 and 11.82% for the second quarter of 2000. For the six months ended June 30, 2001 and 2000 return on average assets was 1.06% and 1.10% respectively. Return on average equity was 10.76% in 2001 and 11.83% 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 $460 thousand, or 10.0%, for the second quarter of 2001 over 2000. Average earning assets increased 9.42% in the second quarter of 2001 from 2000. For the six months ended June 30, 2001 net interest income on a fully tax equivalent basis increased $640 thousand, or 7.14%, over the comparable period in 2000. Comparing the first six months of 2001 to 2000, average loans increased $31.88 million or 10.87% while investment securities decreased $6.0 million or 4.65%. Average earning assets increased 9.43% and the net interest yield decreased from 4.22% in 2000 to 4.13% in 2001. Interest expense increased $222 thousand or 5.50% in the second quarter of 2001 from the second quarter of 2000. Interest bearing liabilities increased $33.37 million or 9.56 % in the second quarter of 2001 over the same period in 2000. The cost of funding those liabilities decreased 17 basis points from 2000. For the six months ended June 30, 2001 interest expense increased $999 thousand, or 12.89% 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 June 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)** $ 328,474 $ 6,963 8.48% $301,102 $ 6,412 8.52% Investment securities: Taxable 73,716 1,173 6.36% 72,906 1,100 6.04% Tax-exempt 52,307 970 7.42% 56,910 1,092 7.68% --------- ------- -------- ------- Total investment securities 126,023 2,143 6.80% 129,816 2,192 6.75% Federal funds sold 18,975 209 4.41% 1,795 30 6.69% --------- ------- -------- ------- Total earning assets $ 473,472 $ 9,316 7.87% $432,713 $ 8,634 7.98% ========= ======= ======== ======= Time and savings deposits: Interest-bearing transaction accounts $ 6,350 26 1.64% $ 3,923 $ 23 2.35% Money market deposit accounts. 101,451 610 2.41% 96,943 735 3.03% Savings accounts 28,630 156 2.18% 28,552 194 2.72% Certificates of deposit, $100,000 or more 49,562 707 5.71% 31,647 465 5.88% Other certificates of deposit 144,652 2,130 5.89% 135,279 1,869 5.53% --------- ------- -------- ------- Total time and savings deposits 330,645 3,629 4.39% 296,344 3,286 4.44% Federal funds purchased and securities sold under agreement to repurchase 24,952 228 3.66% 28,145 371 5.27% Federal Home Loan Bank advances 25,000 384 6.14% 21,975 344 6.26% Other short term borrowings 1,897 17 3.58% 2,665 35 5.25% --------- ------- -------- ------- Total interest bearing liabilities. $ 382,494 4,258 4.45% $349,129 4,036 4.62% Net interest income/yield $ 5,058 4.27% $ 4,598 4.25% ======= ===== ======= ===== <caption> - ------------------------------------------------------------------------------------------------------------ For the six months ended June 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)** $ 325,034 $13,917 8.56% $293,154 $12,377 8.44% Investment securities: Taxable 71,207 2,122 5.96% 63,536 2,194 6.91% Tax-exempt 52,694 1,933 7.34% 66,413 2,094 6.31% --------- ------- -------- ------- Total investment securities 123,901 4,055 6.55% 129,949 4,288 6.60% Federal funds sold. 15,757 380 4.82% 1,530 49 6.41% --------- ------- -------- ------- Total earning assets $ 464,692 $18,353 7.90% $424,633 $16,714 7.87% Time and savings deposits: Interest-bearing transaction accounts $ 5,979 $ 58 1.94% $ 3,967 $ 47 2.37% Money market deposit accounts 97,895 1,318 2.69% 95,245 1,492 3.13% Savings accounts 28,391 346 2.44% 28,535 388 2.72% Certificates of deposit, $100,000 or more 48,265 1,389 5.76% 31,571 890 5.64% Other certificates of deposit 142,740 4,286 6.01% 135,138 3,694 5.47% --------- ------- -------- ------- Total time and savings deposits 323,270 7,397 4.58% 294,455 6,511 4.42% Federal funds purchased and securities sold under agreement to repurchase 25,578 543 4.25% 26,234 660 5.03% Federal Home Loan Bank advance 25,000 763 6.10% 16,934 514 6.07% Other short term borrowings 1,944 43 4.42% 2,291 62 5.41% --------- ------- -------- ------- Total interest bearing liabilities $ 375,792 8,746 4.65% $339,914 7,747 4.56% Net interest income/yield $ 9,607 4.13% $ 8,967 4.22% ======= ===== ======= ===== * Tax equivalent yields based on 34% tax rate. ** Nonaccrual loans are included in the average loan balances and income on such loans is recognized on a cash basis. </table> -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 $400 thousand for the first six months of 2001, up from $325 thousand in the comparable period in 2000. Loans charged off (net of recoveries) were $508,480 compared with loans charged off (net of recoveries) of $50,948 in the first six months of 2000. On an annualized basis net loan charge-offs were 0.31% of total loans for the first half of 2001 compared with 0.03% for the same period in 2000. On June 30, 2001 nonperforming assets totaled $1.59 million compared with $833 thousand on June 30, 2000. The June 2001 total consisted of $940 thousand in foreclosed real estate, $165 thousand in a former branch site now listed for sale, and $483 thousand in nonaccrual loans. The June 2000 total consisted of $354 thousand in a former branch site and $479 thousand in nonaccrual loans. Loans still accruing interest but past due 90 days or more decreased to $208 thousand as of June 30, 2001 compared with $687 thousand as of June 30, 2000. The allowance for loan losses on June 30, 2001 was $3.5 million compared with $3.4 million on June 30, 2000. It represented a multiple of 2.2 times nonperforming assets and 7.2 times nonperforming loans. The allowance for loan losses was 1.06% and 1.10% of loans on June 30, 2001 and 2000 respectively. Other Income - ------------ For the second quarter of 2001 other income increased $201 thousand, or 14.30%, and for the six months ended June 30, 2001 other income increased $253 thousand or 8.92%. In both periods, the increase in income is attributed to an increase in fiduciary income as well as an increase in other commissions and fees. Other Expenses - -------------- For the second quarter of 2001 other expenses increased $341 thousand or 8.83% over the second quarter of 2000. For the six months ending June 2001 other expenses increased $572 thousand or 7.48% over the same period in 2000. For the six months ended June 30, 2001, salaries and employee benefits increased $301 thousand or 6.54%. Occupancy expenses increased $32 thousand or 6.29%. Furniture and equipment expense increased $55 thousand or 7.11%. Other operating expense increased $185 thousand or 10.39% Assets - ------ At June 30, 2001 total assets were $507.7 million, up 6.41% from $477.1 million at December 31, 2000. Total loans grew $13.5 million or 4.22%. The majority of this growth was in the commercial and industrial and loans to individuals for household, family and other personal expenditures portfolios. Investment securities and federal funds sold increased by $16.8 million, or 13.08%, in 2001. Total deposits increased $24.3 million, or 6.50% in 2001 and demand note balances to the United States Treasury increased $3.8 million from year-end 2000. -10- <page> Capital Ratios - -------------- The Company's capital position remains strong as evidenced by the regulatory capital measurements. At June 30, 2001 the Tier I capital ratio was 13.77%, the total capital ratio was 14.78% and the leverage ratio was 9.61%. 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 late 2001 or early 2002. 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 second quarter of 2001 and continues to be well above targeted projections made for 2001. Loan growth for the first six months of 2001 met targeted projections. The Company is extremely liquid as reflected in the large growth in federal funds sold balance as of June 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'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 June 30, 2001. There were $113 million more in liabilities than assets subject to repricing within three months. As of December 31, 2000, the Company had $143 million more in liabilities than assets subject to repricing within three months. When the company is liability sensitive, net interest income should improve if interest rates fall since liabilities will reprice faster than assets. Conversely, if interest rates rise, net interest income should decline. It should be noted, however, that deposits totaling $135.6 million; which consist of interest checking, money market, and savings accounts; are less interest sensitive than other market driven deposits. In a rising rate environment these deposit rates have historically lagged behind the changes in earning asset rates, thus mitigating somewhat the impact from the liability sensitivity position. Market risk is the risk of loss due to changes in instrument values or earnings variations caused by changes in interest rates, commodity prices and market variables such as equity price risk. Old Point Financial Corporation's equity price risk is immaterial and the company's primary exposure is to interest rate risk. Non-trading market risk is the risk to net income from changes in interest rates on asset and liabilities, other than trading. The risk arises through the potential mismatch resulting from timing differences in repricing of loans and deposits. Old Point Financial Corporation monitors this risk by reviewing the timing differences and using a portfolio rate shock model that projects various changes in interest income under a changing rate environment of up to plus or minus 300 basis points. The rate shock model reveals that a 100 basis point drop in rates would cause approximately a 1.69% decrease in net income. The rate shock model reveals that a 100 basis point rise in rates would cause approximately a 0.65% incease in net income and that a 200 basis point rise in rates would cause approximately a 1.01% increase in net income at June 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 second 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 August 10, 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- <page>