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, 1999 [ ] 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, 1999. Class Outstanding at October 31, 1999 Common Stock, $5.00 par value 2,581,822 shares
OLD POINT FINANCIAL CORPORATION FORM 10-Q INDEX PART I - FINANCIAL INFORMATION Page Item 1. Financial Statements.........................................1 Consolidated Balance Sheets September 30, 1999 and December 31, 1998...........1 Consolidated Statement of Earnings Three months ended September 30, 1999 and 1998...........2 Nine months ended September 30, 1999 and 1998..............2 Consolidated Statement of Cash Flows Nine months ended September 30, 1999 and 1998...........3 Consolidated Statements of Changes in Stockholders' Equity Nine months ended September 30, 1999 and 1998...........4 Notes to Consolidated Financial Statements......................5 Parent Only Balance Sheets September 30, 1999 and December 31, 1998..........6 Parent Only Statement of Earnings Three months ended September 30, 1999 and 1998..6 Nine months ended September 30, 1999 and 1998...6 Parent Only Statement of Cash Flows Three months ended September 30, 1999 and 1998..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.............................13 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................14 (i)
<TABLE> <CAPTION> ----------------------------------------------------------------------------------- OLD POINT FINANCIAL CORPORATION September 30, December 31, Consolidated Balance Sheets 1999 1998 Unaudited (Dollars in Thousands) ----------------------------------------------------------------------------------- Assets <S> <C> <C> Cash and due from banks........................ $8,358,617 $10,310,839 Investments: Securities available for sale, at market..... 83,328,553 82,568,024 Securities to be held to maturity............ 49,933,230 54,919,340 Trading account securities..................... 0 0 Federal funds sold............................. 9,166,493 6,577,903 Loans, total .................................. 270,248,553 235,865,038 Less reserve for loan losses............... 2,969,430 2,854,952 ------------- ------------- Net loans.............................. 267,279,123 233,010,086 Bank premises and equipment.................... 13,758,390 12,051,677 Other real estate owned........................ 413,864 483,864 Other assets................................... 5,345,690 4,195,963 ------------- ------------- Total assets.............................. $437,583,960 $404,117,696 ============= ============= Liabilities Noninterest-bearing deposits................... $68,036,446 $65,335,643 Savings deposits............................... 124,923,457 121,681,505 Time deposits.................................. 168,345,060 156,395,329 ------------ ------------ Total deposits.............................. 361,304,963 343,412,477 Federal funds purchased and securities sold under agreement to repurchase.............. 20,626,805 19,128,382 Federal Home Loan Bank Advances................ 9,000,000 0 Interest-bearing demand notes issued to the United States Treasury and other liabilities for borrowed money.............. 4,007,227 348,057 Other liabilities.............................. 1,987,532 1,215,785 ------------ ------------ Total liabilities........................... 396,926,527 364,104,701 Stockholders' Equity Common stock, $5.00 par value.................. 12,909,110 12,877,220 1999 1998 Shares authorized..6,000,000 6,000,000 Shares outstanding.2,581,822 2,575,444 Surplus........................................ 10,157,505 10,020,066 Undivided profits.............................. 18,938,701 16,284,552 Unrealized gain/(loss) on securities........... (1,347,883) 831,157 ----------- ------------ Total stockholders' equity................. 40,657,433 40,012,995 Total liabilities and stockholders' equity. $437,583,960 $404,117,696 ============= ============= 1 </TABLE>
<TABLE> <CAPTION> ---------------------------------------------------------------------------------------------------------- OLD POINT FINANCIAL CORPORATION Three Months Ended Nine Months Ended Consolidated Statements of Earnings September 30, September 30, Unaudited 1999 1998 1999 1998 ---------------------------------------------------------------------------------------------------------- (Dollars in Thousands except per share amounts) Interest Income <S> <C> <C> <C> Interest and fees on loans..................... $5,545,428 $5,065,052 $15,953,718 $15,111,942 Interest on federal funds sold................. 39,109 132,098 131,448 455,373 Interest on securities: Taxable..................................... 1,213,301 1,406,532 3,736,005 3,896,480 Exempt from Federal income tax.............. 687,098 462,728 1,999,121 1,231,401 Interest on trading account.................... 0 0 0 0 --------------------- ------------------------ 1,900,399 1,869,260 5,735,126 5,127,881 --------------------- ------------------------ Total interest income...................... 7,484,936 7,066,410 21,820,292 20,695,196 Interest Expense Interest on savings deposits................... 960,832 888,466 2,789,471 2,496,733 Interest on time deposits...................... 2,184,869 2,118,854 6,453,596 6,063,180 Interest on federal funds purchased and securities sold under agreement to repurchase. 242,744 301,014 716,710 757,466 Interest on Federal Home Loan Bank Advances.... 127,471 0 179,340 0 Interest on demand notes (note balances) issued to the United States Treasury and on other borrowed money......................... 20,608 21,562 57,465 74,408 --------------------- ------------------------ Total interest expense..................... 3,536,524 3,329,896 10,196,582 9,391,787 Net interest income............................ 3,948,412 3,736,514 11,623,710 11,303,409 Provision for loan losses...................... 150,000 150,000 450,000 500,000 --------------------- ------------------------ Net interest income after provision for loan losses............................... 3,798,412 3,586,514 11,173,710 10,803,409 Other Income Income from fiduciary activities............... 569,872 449,850 1,679,572 1,349,550 Service charges on deposit accounts............ 538,397 495,878 1,615,897 1,402,651 Other service charges, commissions and fees.... 151,924 153,124 515,057 497,178 Other operating income......................... 63,182 74,621 198,155 275,625 Security gains (losses)........................ (53,932) 0 (53,932) 9 Trading account income......................... 0 0 0 0 --------------------- ------------------------ Total other income......................... 1,269,443 1,173,473 3,954,749 3,525,013 Other Expenses Salaries and employee benefits................. 2,133,266 1,960,710 6,358,490 5,719,487 Occupancy expense of Bank premises............. 240,827 251,186 713,589 694,549 Furniture and equipment expense................ 321,879 289,313 927,664 875,985 Other operating expenses....................... 794,200 760,652 2,432,983 2,347,527 --------------------- ------------------------ Total other expenses....................... 3,490,172 3,261,861 10,432,726 9,637,548 --------------------- ------------------------ Income before taxes............................ 1,577,683 1,498,126 4,695,733 4,690,874 Applicable income taxes ....................... 346,400 343,000 980,400 1,194,100 --------------------- ------------------------ Net income..................................... $1,231,283 $1,155,126 $3,715,333 $3,496,774 ===================== ======================== Per Share Based on weighted average number of common shares outstanding.................... 2,581,822 2,573,235 2,578,030 2,568,964 Basic Earnings Per Share....................... $0.48 $0.45 $1.44 $1.36 Diluted Earnings Per Shares.................... $0.48 $0.45 $1.44 $1.36 2 </TABLE>
<TABLE> <CAPTION> -------------------------------------------------------------------------------------------------- OLD POINT FINANCIAL CORPORATION Nine Months Ended Consolidated Statements of Cash Flows September 30, (Unaudited) 1999 1998 -------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES <S> <C> <C> Net income.................................................... $ 3,715,333 $ 3,496,774 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................... 807,531 717,882 Provision for loan losses................................... 450,000 500,000 (Gains) loss on sale of investment securities, net.......... 53,932 (9) Net amortization & accretion of securities ................. 63,821 121,766 Net (increase) decrease in trading account.................. 0 0 (Increase) in other real estate owned....................... (275,056) (296,909) (Increase) decrease in other assets (net of tax effect of FASB 115 adjustment)................ (27,191) (1,193,989) Increase (decrease) in other liabilities.................... 771,747 664,494 ------------ ------------- Net cash provided by operating activities................. 5,560,117 4,010,009 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities .................................... (25,559,816) (64,422,396) Proceeds from maturities & calls of securities ............. 25,020,000 27,745,253 Proceeds from sales of available - for - sale securities.... 1,346,068 0 Proceeds from sales of held - to - maturity securities...... 0 0 Loans made to customers..................................... (130,798,723) (103,860,859) Principal payments received on loans........................ 96,079,685 94,639,573 Proceeds from sales of other real estate owned.............. 345,056 586,910 Purchases of premises and equipment......................... (2,514,244) (3,011,815) (Increase) decrease in federal funds sold................... (2,588,590) 79,487 ------------ ------------- Net cash provided by (used in) investing activities....... (38,670,564) (48,243,847) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in non-interest bearing deposits........ 2,700,803 5,784,968 Increase (decrease) in savings deposits..................... 3,241,952 14,999,686 Proceeds from the sale of certificates of deposit........... 41,097,830 49,570,250 Payments for maturing certificates of deposit............... (29,148,099) (30,659,073) Increase (decrease) in federal funds purchased & repurchase agreements...................................... 1,498,423 4,249,252 Increase (decrease) in other borrowed money................. 12,659,170 (2,688,885) Proceeds from issuance of common stock...................... 139,424 142,138 Dividends paid.............................................. (1,031,279) (899,222) ------------ ------------- Net cash provided by financing activities................. 31,158,225 40,499,114 Net increase (decrease) in cash and due from banks........ (1,952,222) (3,734,724) Cash and due from banks at beginning of period............ 10,310,839 12,208,408 ------------ ------------- Cash and due from banks at end of period.................. $ 8,358,617 $ 8,473,684 ============ ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash payments for: Interest.................................................. $ 12,588,918 $ 9,212,018 Income taxes.............................................. 900,000 1,350,000 See accompanying notes - 3 - </TABLE>
<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 ----------------------------------------------------------------------------------------------------------------------------- FOR NINE MONTHS ENDED SEPTEMBER 31, 1999 <S> <C> <C> <C> <C> <C> <C> Balance at beginning of period...... 2,575,444 $12,877,220 $10,020,066 $16,284,552 $ 831,157 $40,012,995 Comprehensive Income Net income........................ 0 0 0 3,715,333 0 3,715,333 Increase (decrease) in unrealized gain on investment securities..... 0 0 0 0 (2,179,040) (2,179,040) ---------------------------------------------------------------------------------- Total Comprehensive Income........ 3,715,333 (2,179,040) 1,536,293 Sale of common stock................ 6,378 31,890 137,439 (29,905) 0 139,424 Cash dividends...................... 0 0 0 (1,031,279) 0 (1,031,279) ---------------------------------------------------------------------------------- Balance at end of period............ 2,581,822 $12,909,110 $10,157,505 $18,938,701 ($1,347,883) $40,657,433 FOR NINE MONTHS ENDED SEPTEMBER 31, 1998 Balance at beginning of period...... 2,566,172 $12,830,860 $ 9,693,301 $13,097,716 $ 710,591 $36,332,468 Comprehensive Income Net income........................ 0 0 0 3,496,774 0 3,496,774 Increase (decrease) in unrealized gain on investment securities..... 0 0 0 0 594,144 594,144 --------------------------------------------------------------------------------- Total Comprehensive Income........ 3,496,774 594,144 4,090,918 Sale of common stock................ 8,472 42,360 303,565 (203,787) 0 142,138 Cash dividends............... ...... 0 0 0 (899,222) 0 (899,222) --------------------------------------------------------------------------------- Balance at end of period............ 2,574,644 $12,873,220 $ 9,996,866 $15,491,481 $ 1,304,735 $39,666,302 </TABLE> See accompany notes 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 1998 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
<TABLE> <CAPTION> - --------------------------------------------------------------------------------------------- OLD POINT FINANCIAL CORPORATION Parent only Balance Sheets September 30, December 31, Unaudited) 1999 1998 - --------------------------------------------------------------------------------------------- <S> <C> <C> Assets Cash in bank................................... $ 33,935 $ 293,695 Investment Securities.......................... 2,050,000 2,107,380 Total Loans.................................... 0 0 Investment in Subsidiaries..................... 38,565,748 37,597,430 Equipment...................................... 0 0 Other assets................................... 7,750 14,490 --------------- -------------- Total Assets................................... $ 40,657,433 $ 40,012,995 =============== ============== Liabilities and Stockholders' Equity Total Liabilities.............................. $ 0 $ 0 Stockholders' Equity........................... 40,657,433 40,012,995 --------------- -------------- Total Liabilities & Stockholders' Equity....... $ 40,657,433 $ 40,012,995 =============== ============== <CAPTION> - ---------------------------------------------------------------------------------------------------------------------------- OLD POINT FINANCIAL CORPORATION Three Months Ended: Nine Months Ended: Parent only Income Statements September 30, September 30, (Unaudited) 1999 1998 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Income <C> Cash dividends from Subsidiary.................... $ 375,000 $ 350,000 $ 1,585,000 $ 950,000 Interest and fees on loans........................ 0 0 0 0 Interest income from investment securities........ 24,873 27,401 74,738 79,281 Gains (losses) from sale of investment securities. (53,932) 0 (53,932) 0 Other income...................................... 0 0 0 0 -------------- -------------- ------------- ------------ Total Income...................................... 345,941 377,401 1,605,806 1,029,281 Expenses Salaries and employee benefits.................... 0 0 0 0 Other expenses.................................... 4,829 37,406 34,662 37,406 -------------- -------------- ------------- ------------ Total Expenses.................................... 4,829 37,406 34,662 37,406 -------------- -------------- ------------- ------------ Income before taxes & undistributed net income of subsidiary...................... 341,112 339,995 1,571,144 991,875 Income tax........................................ 4,500 8,000 11,300 14,100 Net income before undistributed net income of subsidiary........................ 336,612 331,995 1,559,844 977,775 -------------- -------------- ------------- ------------ Undistributed net income of subisdiary............ 894,671 790,124 2,155,489 2,518,999 --------------- -------------- ------------- ------------ Net Income........................................ $ 1,231,283 $ 1,122,119 $ 3,715,333 $ 3,496,774 </TABLE> 6
<TABLE> <CAPTION> --------------------------------------------------------------------------------------------- OLD POINT FINANCIAL CORPORATION Nine Months Ended: Parent only Statements of Cash Flows September 30, (Unaudited) 1999 1998 --------------------------------------------------------------------------------------------- <S> <C> <C> Cash Flows from Operating Activities: Net Income.......................................... $ 3,715,333 $ 3,496,774 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsidiary.... (2,155,489) (2,518,999) Depreciation...................................... 0 0 (Gain) or loss on sale of assets................. 53,932 0 (Increase) decrease in other assets............. (7,750) 0 Increase (decrease) in other liabilities........ 0 14,100 --------------- -------------- Net cash provided by operating activities........... 1,606,026 991,875 Cash flows from investing activities: Purchases of securities............................. (1,500,000) 0 Proceeds from sales of available-for-sale securities 1,346,068 0 Proceeds from sales of held- to-maturity securities. 0 0 Payments for investments in and advances to susidiaries...................................... (1,020,000) 0 Sale or repayment of investments in and advances to subsidiaries................................... 200,000 (250,000) --------------- -------------- Net cash provided by investing activities........... (973,932) (250,000) Cash flows from financing activities: Proceeds from issuance of common stock.............. 139,425 142,138 Dividends paid...................................... (1,031,279) (899,222) --------------- -------------- Net cash provided by financing activities........... (891,854) (757,084) Net increase (decrease) in cash & due from banks.... (259,760) (15,209) Cash & due from banks at beginning of period........ 293,695 289,230 --------------- -------------- Cash & due from banks at end of period.............. $ 33,935 $ 274,021 =============== ============== </TABLE> 7
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Summary Net income for the third quarter of 1999 increased 7% to $1,231,283 from $1,155,126 for the comparable period in 1998. Basic earnings per share were $0.48 in the third quarter of 1999 compared with $0.45 in 1998. For the nine months ended September 30, 1999 net income increased 6.25% to $3,715,333 from $3,496,774 in 1998. Basic earnings per share were $1.44 for the first nine months of 1999 compared with $1.36 in 1998. Return on average assets was 1.15% for the third quarter of 1999 and 1.19% for the comparable period in 1998. Return on average equity was 12.10% for the third quarter of 1999 and 11.81% for the third quarter of 1998. For the nine months ended September 30, 1999 and 1998 return on average assets was 1.18% and 1.24% respectively. Return on average equity was 12.12% in 1999 and 12.26% in 1998. Net Interest Income Net interest income, on a fully tax equivalent basis, increased $330 thousand, or 8%, for the third quarter of 1999 over 1998. 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 4.37% in 1998 to 4.27% in 1999. For the nine months ended September 30, 1999 net interest income, on a fully tax equivalent basis, increased $720 thousand, or 6%, over the comparable period in 1998. Average earning assets increased 12% and the net interest yield decreased from 4.55% in 1998 to 4.30% in 1999. Loans increased $28 million and investment securities increased $22 million from the same period last year. A large percent of the increase was invested in tax exempt securities that have higher tax equivalent yields. Interest rates on deposits decreased 14 basis points during the first nine months of 1999 over the comparable period in 1998 while loan rates decreased 55 basis points during the same period. This contributed to the decrease in the net interest yield. Page 9 shows an analysis of average earning assets, interest bearing liabilities and rates and yields. 8
<TABLE> <CAPTION> --------------------------------------------------------------------------------------------------------------- OLD POINT FINANCIAL CORPORATION NET INTEREST INCOME ANALYSIS For the quarter ended September 30, (Fully taxable equivalent basis) * 1999 1998 --------------------------------------------------------------------------------------------------------------- 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)**.............. $264,172 5,566 8.43% $228,335 5,082 8.90% Investment securities:*** Taxable..................................... 80,152 1,213 6.05% 91,557 1,406 6.14% Tax-exempt.................................. 57,372 1,041 7.26% 36,625 701 7.66% -------------------- ----------------- Total investment securities............... 137,524 2,254 6.56% 128,182 2,107 6.58% Federal funds sold............................ 2,885 39 5.41% 9,252 132 5.71% -------------------- ----------------- Total earning assets........................ $404,581 $7,859 7.77% $365,769 $7,321 8.01% Time and savings deposits: Interest-bearing transaction accounts....... $3,973 $24 2.42% $ 19,643 $108 2.20% Money market deposit accounts............... 94,555 741 3.13% 69,982 601 3.44% Savings accounts............................ 28,495 197 2.77% 26,081 180 2.76% Certificates of deposit, $100,000 or more... 30,839 423 5.49% 26,677 385 5.77% Other certificates of deposit............... 132,216 1,762 5.33% 124,156 1,733 5.58% -------------------- ----------------- Total time and savings deposits........... 290,078 3,147 4.34% 266,539 3,007 4.51% Federal funds purchased and securities sold under agreement to repurchase............... 21,971 243 4.42% 24,314 301 4.95% Federal Home Loan Bank advances............... 9,548 127 5.32% 0 0 0.00% Other short term borrowings................... 1,704 20 4.69% 1,541 21 5.45% -------------------- ----------------- Total interest bearing liabilities.......... $323,301 3,537 4.38% $292,394 3,329 4.55% Net interest income/yield..................... $4,322 4.27% $3,992 4.37% ===== ===== ===== ===== <CAPTION> ---------------------------------------------------------------------------------------------------------------------- For the nine months ended September 30, 1999 1998 ---------------------------------------------------------------------------------------------------------------------- Average Average Interest Rates Interest Rates Average Income/ Earned/ Average Income/ Earned/ Dollars in thousands Balance Expense Paid Balance Expense Paid ---------------------------------------------------------------------------------------------------------------------- <S> <C> Loans (net of unearned income)**.............. $253,236 $16,010 8.43% $225,059 $15,163 8.98% Investment securities:*** Taxable..................................... 82,120 3,736 6.07% 84,174 3,896 6.17% Tax-exempt.................................. 55,331 3,029 7.30% 31,542 1,866 7.89% -------------------- ------------------ Total investment securities............... 137,451 6,765 6.56% 115,716 5,762 6.64% Federal funds sold............................ 3,442 131 5.07% 10,721 455 5.66% -------------------- ------------------ Total earning assets........................ $394,129 $22,906 7.75% $351,496 $21,380 8.11% Time and savings deposits: Interest-bearing transaction accounts....... $ 3,948 $70 2.36% $19,880 $321 2.15% Money market deposit accounts............... 93,470 2,152 3.07% 65,593 1,638 3.33% Savings accounts............................ 27,710 568 2.73% 26,241 538 2.73% Certificates of deposit, $100,000 or more... 29,834 1,233 5.51% 25,441 1,081 5.67% Other certificates of deposit............... 131,610 5,221 5.29% 119,847 4,982 5.54% ------------------- ------------------ Total time and savings deposits........... 286,572 9,244 4.30% 257,002 8,560 4.44% Federal funds purchased and securities sold under agreement to repurchase............... 22,209 717 4.30% 21,419 757 4.71% Federal Home Loan Bank advances............... 4,479 179 5.33% 0 0 0.00% Other short term borrowings................... 1,657 57 4.59% 1,799 74 5.48% -------------------- ------------------ Total interest bearing liabilities.......... $314,917 10,197 4.32% $280,220 9,391 4.47% Net interest income/yield..................... $12,709 4.30% $11,989 4.55% ====== ===== ===== ===== * 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. </TABLE> 9
Provision/Allowance for Loan Losses The provision for loan losses was $450,000 for the first nine months of 1999, down $50,000 over the comparable period in 1998. Loans charged off (net of recoveries) were $335,523 in the first nine months of 1999, compared with $425,215 for the same period in 1998. On an annualized basis net loan charge-offs were 0.17% of period end total loans for the first nine months of 1999 compared with 0.25% for the same period in 1998. On September 30, 1999 nonperforming assets totaled $555 thousand compared with $838 thousand on September 30, 1998. The September 1999 total consisted of $60 thousand in foreclosed real estate, $354 thousand in a former branch site, and $141 thousand in nonaccrual loans. The September 1998 total consisted of $130 thousand in foreclosed real estate, $354 thousand in a former branch site now listed for sale, and $354 thousand in nonaccrual loans. Loans still accruing interest but past due 90 days or more decreased to $557 thousand as of September 30, 1999 compared with $1.18 million on September 30, 1998. The allowance for loan losses on September 30, 1998 was $2.97 million. It represented a multiple of 5.35 times nonperforming assets and 21.06 times nonperforming loans. The allowance for loan losses on September 30, 1999 was 1.10% of loans compared to 1.19% at September 30, 1998. Other Income Other income increased $95,970 or 8%, for the third quarter of 1999 over the same period in 1998. Income from fiduciary activities increased 27% and service charges on deposit accounts increased 8%. These areas were also the main contributors to the 1999 nine month increase of $429,736 or 12% from 1998. Other Expenses Other expenses increased $228,311 or 7%, in the third quarter of 1999 over 1998. Salary and furniture & equipment expenses had the greatest impact on the increase in other expenses due to the opening of two new branches. For the nine months ended September 30, 1999 other expenses increased $795,178 or 8%, from 1998. As mentioned above the increase is primarily due to salaries and furniture & equipment expenses related to the opening of the two new offices. Financial Condition At September 30, 1999 total assets were $437.6 million, up 8% from $404.1 million at December 31, 1998. Total loans grew $34.4 million, or 15% and investment securities decreased $4.2 million, or 3%, in 1999. Total deposits increased $17.9 million, or 5% in 1999 and demand note balances to the U. S. Treasury increased $3.67 million to $4.0 million from $333 thousand at year-end 1998. Capital Resources The Company's capital position remains strong as evidenced by the regulatory capital measurements. At September 30, 1999 the Tier I capital ratio was 14.31%, the total capital ratio was 15.32% and the leverage ratio was 9.79%. These ratios were all well above the regulatory minimum levels of 4.00%, 8.00%, and 3.00%, respectively. 10
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 and Federal Home Loan Bank advances. The Company was liability sensitive as of September 30, 1999. There were $130 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 totaling $125 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. The table on page 12 reflects the earlier of the maturity or repricing data for various assets and liabilities as of September 30, 1999. 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. General The Company opened two new branch offices in 1999. One in Norge, Virginia and one in Chesapeake, Virginia. Additionally, the Company is expanding its Woodland Road office. Year 2000 The Company has been working on Year 2000 problem preparations for the past few years to ensure its hardware and software are Year 2000 compliant. The Company has followed a five phase plan, which conforms to the standards established by the Federal Financial Institutions Examination Council (FFIEC). The plan includes testing all software and hardware owned by the Company for Year 2000 compliance. The core application for processing loans, deposits and general ledger has been successfully tested by the vendor Fiserv. The Company has also successfully tested the core application. Any hardware or software that was not Year 2000 compliant was replaced and new purchases are tested for Year 2000 compliance. The Office of the Comptroller of the Currency is responsible for examining the Bank for compliance to regulatory standards. The internal audit department has completed a review and determined the Bank complies with the FFIEC's five phase plan. 11
During the second quarter of 1999 the Company completed the capital expenditures and operating costs associated with Year 2000 compliance. The Company spent approximately $750 thousand to upgrade and/or replace computer systems. In addition, the Company spent approximately $250 thousand in operating expenses to test and implement the Year 2000 plan. During the third quarter of 1999 the Company has been focusing its Year 2000 efforts on informing its customers about the safety of FDIC deposits and risks of potential Y2K scams. These efforts have taken the form of in house displays, statement stuffers and posts to the Company's web site, www.oldpoint.com. Additionally the Company is advertising with other local community banks. 12
<TABLE> <CAPTION> ---------------------------------------------------------------------------------- INTEREST SENSITIVITY ANALYSIS As of September 30, 1999 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.............. 9,166 0 0 0 9,166 Taxable investments............. 4,780 0 46,435 25,291 76,506 Tax-exempt investments.......... 201 1,573 5,236 49,746 56,756 -------- -------- -------- -------- -------- Total investments............. 14,147 1,573 51,671 75,037 142,428 Loans: Commercial.................... 22,849 1,509 29,109 3,876 57,343 Tax-exempt.................... 824 43 25 2,021 2,913 Installment................... 4,135 2,718 49,881 6,552 63,286 Real estate................... 19,403 6,607 82,794 37,070 145,874 Other......................... 300 0 533 0 833 -------- -------- -------- -------- -------- Total loans..................... 47,511 10,877 162,342 49,519 270,249 -------- -------- -------- -------- -------- Total earning assets............ 61,658 12,450 214,013 124,556 412,677 Sources of funds Interest checking deposits...... 3,673 0 0 0 3,673 Money market deposit accounts... 92,856 0 0 0 92,856 Regular savings accounts........ 28,394 0 0 0 28,394 Certificates of deposit......... $100,000 or more.............. 6,916 17,882 9,196 0 33,994 Other time deposits............. 33,214 56,701 44,436 0 134,351 Federal funds purchased and securities sold under agreements to repurchase...... 20,627 0 0 0 20,627 Other borrowed money............ 6,000 0 7,007 0 13,007 -------- -------- -------- -------- -------- Total interest bearing liabilities 191,680 74,583 60,639 0 326,902 Rate sensitivity GAP............ (130,022) (62,133) 153,374 124,556 85,775 Cumulative GAP.................. (130,022) (192,155) (38,781) 85,775 13 </TABLE>
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 1999. 14
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 15, 1999 By: /s Robert F. Shuford Robert F. Shuford President and Director Principal Executive Officer By: /s Louis G. Morris Louis G. Morris Senior Vice President and Treasurer Principal Financial and Accounting Officer 15