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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, 2002
[ ] 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, 2002.
Class Outstanding at June 30, 2002
----- ----------------------------
Common Stock, $5.00 par value 2,609,855 shares
OLD POINT FINANCIAL CORPORATION
FORM 10-Q
INDEX
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PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements............................................1
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001.......................1
Consolidated Statement of Earnings
Three months ended June 30, 2002 and 2001.................2
Six months ended June 30, 2002 and 2001...................2
Consolidated Statement of Cash Flows
Six months ended June 30, 2002 and 2001...................3
Consolidated Statements of Changes in Stockholders' Equity
Six months ended June 30, 2002 and 2001...................4
Notes to Consolidated Financial Statements.........................5
Parent Only Balance Sheets
June 30, 2002 and December 31, 2001................6
Parent Only Statement of Earnings
Three months ended June 30, 2002 and 2001..........6
Six months ended June 30, 2002 and 2001............6
Parent Only Statement of Cash Flows
Six months ended June 30, 2002 and 2001............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.....14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...............................15
(i)
- ----------------------------------------------------------------------------------------
Unaudited June 30, December 31,
Consolidated Balance Sheets 2002 2001
- ----------------------------------------------------------------------------------------
Assets
Cash and due from banks................................... $ 12,535,705 $ 14,402,541
Interest bearing balances due from banks.................. 306,682 383,324
------------ ------------
Total cash due from banks.............................. $ 12,842,387 $ 14,785,865
Investments:
Securities available for sale, at market................ 100,052,962 97,917,884
Securities to be held to maturity....................... 32,765,231 38,082,927
Trading account securities................................ - -
Federal funds sold........................................ 5,275,199 5,018,240
Loans, total ............................................. 363,310,603 346,482,751
Less reserve for loan losses.......................... 4,208,941 3,893,559
Net loans......................................... 359,101,662 342,589,192
Bank premises and equipment............................... 13,537,667 14,419,564
Other real estate owned................................... 1,347,000 1,003,229
Other assets.............................................. 10,706,192 4,942,161
------------ ------------
Total assets......................................... $535,628,300 $518,759,062
============ ============
Liabilities
Noninterest-bearing deposits.............................. $ 82,088,915 $ 79,978,127
Savings deposits.......................................... 148,210,088 140,848,118
Time deposits............................................. 197,674,377 191,476,949
------------ ------------
Total deposits......................................... 427,973,380 412,303,194
Federal funds purchased and securities sold under
agreement to repurchase............................... 20,704,457 28,320,881
Interest-bearing demand notes issued to the United States
Treasury and other liabilities for borrowed money...... 4,744,911 369,075
Federal Home Loan Bank.................................... 25,000,000 25,000,000
Other liabilities......................................... 2,285,511 1,853,841
------------ ------------
Total liabilities...................................... 480,708,259 467,846,991
Stockholders' Equity
Common stock, $5.00 par value............................. $ 13,049,275 $ 12,997,885
2002 2001
Shares authorized.... 10,000,000 10,000,000
Shares outstanding... 2,609,855 2,599,577
Surplus................................................... 10,738,126 10,455,061
Undivided profits......................................... 29,836,570 27,340,908
Accumulated other comprehensive income (loss)............. 1,296,070 118,217
------------ ------------
Total stockholders' equity............................ 54,920,041 50,912,071
------------ ------------
Total liabilities and stockholders' equity............ $535,628,300 $518,759,062
============ ============
1
- -----------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
Consolidated Statements of Earnings June 30, June 30,
2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------------
Interest Income
Interest and fees on loans $ 6,767,573 $ 6,941,909 $13,423,489 $13,872,691
Interest on federal funds sold 48,621 208,825 90,968 379,688
Interest on securities:
Interest on United States Treasury securities (taxable) 24,016 22,944 47,125 46,941
Interest on obligations of other
United States Government agencies (taxable) 982,757 969,544 2,037,707 1,874,342
Interest on obligations of states and
political subdivisions (tax exempt) 586,398 625,747 1,181,988 1,261,210
Interest on obligations of states and
political subdivisions (taxable) 18,977 19,535 38,326 39,441
Interest on trading account securities - - - -
Dividends and interest on all other securities 30,204 85,909 61,814 177,231
----------- ----------- ----------- -----------
Total interest on securities 1,642,352 1,723,679 3,366,960 3,399,165
Trading account securities - - - -
----------- ----------- ----------- -----------
Total interest income 8,458,546 8,874,413 16,881,417 17,651,544
Interest Expense
Interest on savings deposits 424,135 791,998 826,557 1,722,392
Interest on time deposits 2,112,911 2,836,595 4,361,547 5,674,710
Interest on federal funds purchased and securities
sold under agreement to repurchase 96,065 227,713 199,278 542,521
Interest on Federal Home Loan Bank advances 383,590 383,590 762,965 762,965
Interest on demand notes (note balances) issued to the
United States Treasury and on other borrowed money 4,989 17,566 15,295 43,335
----------- ----------- ----------- -----------
Total interest expense 3,021,690 4,257,462 6,165,642 8,745,923
Net interest income 5,436,856 4,616,951 10,715,775 8,905,621
Provision for loan losses 400,000 250,000 700,000 400,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 5,036,856 4,366,951 10,015,775 8,505,621
Other Income
Income from fiduciary activities 568,528 697,238 1,097,472 1,319,168
Service charges on deposit accounts 731,438 619,502 1,429,058 1,220,181
Other service charges, commissions and fees 291,634 176,490 568,640 385,770
Other operating income 272,426 109,934 405,339 159,777
Security gains (losses) 4,183 - 9,398 -
Trading account income - - - -
----------- ----------- ----------- -----------
Total other income 1,868,209 1,603,164 3,509,907 3,084,896
Other Expenses
Salaries and employee benefits 2,691,893 2,489,750 5,305,724 4,893,163
Occupancy expense of Bank premises 270,197 283,857 569,293 546,989
Furniture and equipment expense 414,381 401,838 820,655 821,503
Other operating expenses 1,151,689 1,024,630 2,223,301 1,964,081
----------- ----------- ----------- -----------
Total other expenses 4,528,160 4,200,075 8,918,973 8,225,736
----------- ----------- ----------- -----------
Income before taxes 2,376,905 1,770,040 4,606,709 3,364,781
Applicable income taxes 564,596 412,475 1,136,840 765,700
----------- ----------- ----------- -----------
Net income $ 1,812,309 $ 1,357,565 $ 3,469,869 $ 2,599,081
=========== =========== =========== ===========
Per Share
Based on weighted average number of
common shares outstanding 2,604,432 2,590,540 2,603,245 2,590,540
Basic Earnings per Share $ 0.70 $ 0.52 $ 1.33 $ 1.00
Diluted Earnings per Share $ 0.68 $ 0.52 $ 1.30 $ 1.00
2
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OLD POINT FINANCIAL CORPORATION Six Months Ended
Consolidated Statements of Cash Flows June 30,
(Unaudited) 2002 2001
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................................... $ 3,469,869 $ 2,599,081
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................. 806,188 721,550
Provision for loan losses..................................... 700,000 400,000
(Gains) loss on sale of investment securities, net............ (9,398) -
Net amortization & accretion of securities ................... 38,774 18,207
Net (increase) decrease in trading account.................... - -
Loss on disposal of bank premises and equipment............... 90,669 -
(Increase) decrease in other real estate owned................ 13,000 (355,000)
(Increase) decrease in other assets
(net of tax effect of FASB 115 adjustment)................ (6,370,804) (326,181)
Increase (decrease) in other liabilities...................... 431,670 706,815
------------ ------------
Net cash provided by operating activities................... (830,032) 3,764,472
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities ...................................... (15,533,221) (19,284,333)
Proceeds from maturities & calls of securities ............... 19,137,900 13,094,429
Proceeds from sales of available - for - sale securities...... 1,333,189 700,000
Proceeds from sales of held - to - maturity securities........ - -
Loans made to customers....................................... (128,177,402) (87,926,489)
Principal payments received on loans.......................... 110,964,932 73,908,679
Proceeds from sales of other real estate owned................ 158,229 -
Purchases of premises and equipment........................... (529,960) (551,214)
(Increase) decrease in federal funds sold..................... (256,959) (10,126,964)
------------ ------------
Net cash provided by (used in) investing activities......... (12,903,292) (30,185,892)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in non-interest bearing deposits.......... 2,110,788 4,293,082
Increase (decrease) in savings deposits....................... 7,361,970 7,942,752
Proceeds from the sale of certificates of deposit............. 50,120,285 38,280,783
Payments for maturing certificates of deposit................. (43,922,857) (26,173,565)
Increase (decrease) in federal funds purchased &
repurchase agreements........................................ (7,616,424) (889,680)
Increase (decrease) in Federal Home Loan Bank advances........ - -
Increase (decrease) in other borrowed money................... 4,375,836 3,804,915
Proceeds from issuance of common stock........................ 193,341 -
Dividends paid................................................ (833,093) (777,162)
------------ ------------
Net cash provided by financing activities................... 11,789,846 26,481,125
Net increase (decrease) in cash and due from banks.......... (1,943,478) 59,705
Cash and due from banks at beginning of period.............. 14,785,865 11,043,772
------------ ------------
Cash and due from banks at end of period.................... $ 12,842,387 $ 11,103,477
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest.................................................... $ 6,396,365 $ 8,633,601
Income taxes................................................ 1,390,000 775,000
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Unrealized gain (loss) on investment securities, net of tax... 1,177,853 816,040
Additional minimum liability related to pension............... - -
Transfer of property from Premises & Equipment to Other Real
Estate Owned................................................ 515,000 -
See accompanying notes
3
- -----------------------------------------------------------------------------------------------------------------------------------
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 SIX MONTHS ENDED JUNE 30, 2002
Balance at beginning of period.......... 2,599,577 $ 12,997,885 $ 10,455,061 $ 27,340,908 $ 118,217 $ 50,912,071
Comprehensive Income
Net income............................ - - - 3,469,869 - 3,469,869
Increase (decrease) in unrealized
gain on investment securities......... - - - - 1,177,853 1,177,853
Minimum pension liability adjustment.. - - - - - -
--------- ------------ ------------ -------------- ------------ ------------
Total Comprehensive Income 3,469,869 1,177,853 4,647,722
Sale of common stock.................... 10,278 51,390 283,065 (141,114) - 193,341
Cash dividends............... .......... - - - (833,093) - (833,093)
--------- ------------ ------------ -------------- ------------ ------------
Balance at end of period................ 2,609,855 $ 13,049,275 $ 10,738,126 $ 29,836,570 $ 1,296,070 $ 54,920,041
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
See accompanying 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 2001
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.
3. Certain amounts in the financial statements have been
reclassified to conform with classifications adopted in the
current year.
5
- ----------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION
Parent only Balance Sheets June 30, December 31,
(Unaudited) 2002 2001
- ----------------------------------------------------------------------------------
Assets
Cash in bank........................................ $ 163,911 $ 275,795
Investment Securities............................... 1,215,000 1,215,000
Total Loans......................................... - -
Investment in Subsidiaries.......................... 53,487,521 49,407,931
Equipment........................................... - -
Other assets........................................ 53,609 13,345
------------ ------------
Total Assets........................................ $ 54,920,041 $ 50,912,071
============ ============
Liabilities and Stockholders' Equity
Total Liabilities................................... $ - $ -
Stockholders' Equity................................ 54,920,041 50,912,071
------------ ------------
Total Liabilities & Stockholders' Equity............ $ 54,920,041 $ 50,912,071
============ ============
- -------------------------------------------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION Three Months Ended: Six Months Ended:
Parent only Income Statements June 30, June 30,
(Unaudited) 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------------
Income
Cash dividends from Subsidiary...................... $ 450,000 $ 400,000 $ 900,000 $ 850,000
Interest and fees on loans.......................... - - - -
Interest income from investment securities.......... 22,690 29,594 45,378 60,336
Gains (losses) from sale of investment securities... - - - -
Other income........................................ 36,000 36,000 72,000 72,000
------------ ------------ -------------- -------------
Total Income........................................ 508,690 465,594 1,017,378 982,336
Expenses
Salaries and employee benefits...................... 67,777 58,188 136,752 120,603
Other expenses...................................... 23,742 39,968 47,454 73,176
------------ ------------ -------------- -------------
Total Expenses...................................... 91,519 98,156 184,206 193,779
------------ ------------ -------------- -------------
Income before taxes & undistributed
net income of subsidiaries...................... 417,171 367,438 833,172 788,557
Income tax.......................................... (17,204) (18,000) (34,960) (34,000)
------------ ------------ -------------- -------------
Net income before undistributed
net income of subsidiaries........................ 434,375 385,438 868,132 822,557
Undistributed net income of subsidiaries............ 1,377,934 856,963 2,601,737 1,776,524
------------ ------------ -------------- -------------
Net Income.......................................... $ 1,812,309 $ 1,242,401 $ 3,469,869 $ 2,599,081
============ ============= ============= =============
6
- -----------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION Six Months Ended:
Parent only Statements of Cash Flows June 30,
(Unaudited) 2002 2001
- -----------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Income.......................................... $ 3,469,869 $ 2,599,081
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed income of subsidiary.... (2,601,738) (1,776,525)
Depreciation...................................... - -
Gains(losses) on sale of securities [net]....... - -
(Increase) Decrease in other assets............. (40,264) (73,266)
Increase (decrease) in other liabilities........ - -
------------ -------------
Net cash provided by operating activities........... 827,867 749,290
Cash flows from investing activities:
(Increase)decrease in investment securities......... - (135,000)
Investment in subsidiaries .................. (300,000) -
Sale of equipment................................... - -
Repayment of loans by customers..................... - -
------------ -------------
Net cash provided by investing activities........... (300,000) (135,000)
Cash flows from financing activities:
Proceeds from issuance of common stock.............. 193,342 -
Dividends paid...................................... (833,093) (777,162)
------------ -------------
Net cash provided by financing activities........... (639,751) (777,162)
Net increase (decrease) in cash & due from banks.... (111,884) (162,872)
Cash & due from banks at beginning of period........ 275,795 225,339
------------ -------------
Cash & due from banks at end of period.............. $ 163,911 $ 62,467
============ =============
7
Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- --------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Earnings Summary
- ----------------
Net income for the second quarter of 2002 increased 33.50% to
$1.81 million from $1.36 million for the comparable period in
2001. Basic earnings per share were $0.70 in the second quarter
of 2002 compared with $0.52 in 2001.
For the six months ended June 30, 2002 net income increased
33.50% to $3.47 million from $2.60 million in 2001. Basic
earnings per share were $1.33 for the first six months of 2002
compared with $1.00 in 2001.
Return on average assets was 1.37% for the second quarter of 2002
and 1.08% for the comparable period in 2001. Return on average
equity was 13.42% for the second quarter of 2002 and 11.16% for
the second quarter of 2001.
For the six months ended June 30, 2002 and 2001 return on average
assets was 1.32% and 1.06% respectively. Return on average
equity was 13.02% in 2002 and 10.76% in 2001.
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 $738 thousand, or 14.59%, for the second quarter of
2002 over 2001. Average earning assets increased 4.39% in the
second quarter of 2002 from 2001.
For the six months ended June 30, 2002 net interest income on a
fully tax equivalent basis increased $1.76 million, or 18.34%,
over the comparable period in 2001. Comparing the first six
months of 2002 to 2001, average loans increased $27.73 million or
8.53% while investment securities increased $7.04 million or
5.68%. Average earning assets increased 6.46% and the net
interest yield increased from 4.13% in 2001 to 4.60% in 2002.
Interest expense decreased $1.24 million or 29.00% in the second
quarter of 2002 from the second quarter of 2001. Interest bearing
liabilities increased $11.31 million or 2.96 % in the second
quarter of 2002 over the same period in 2001. The cost of
funding those liabilities decreased 138 basis points from 2001.
For the six months ended June 30, 2002 interest expense decreased
$2.58 million, or 29.50% over the same period in 2001.
Page 9 shows an analysis of average earning assets, interest
bearing liabilities and rates and yields.
8
- ------------------------------------------------------------------------------------------------------------
OLD POINT FINANCIAL CORPORATION
NET INTEREST INCOME ANALYSIS For the quarter ended June 30,
(Fully taxable equivalent basis) * 2002 2001
Average Average
Interest Rates Interest Rates
Average Income/ Earned Average Income/ Earned/
Dollars in thousands Balance Expense Paid Balance Expense Paid
- ------------------------------------------------------------------------------------------------------------
Loans (net of unearned income)** $ 356,130 $ 6,785 7.62% $ 328,474 $ 6,963 8.48%
Investment securities:
Taxable 77,243 1,072 5.55% 73,716 1,173 6.36%
Tax-exempt 49,189 912 7.42% 52,307 970 7.42%
--------- ------- -------- -------
Total investment securities 126,432 1,984 6.28% 126,023 2,143 6.80%
Federal funds sold 11,675 49 1.68% 18,975 209 4.41%
--------- ------- -------- -------
Total earning assets $ 494,237 $ 8,818 7.14% $473,472 $ 9,315 7.87%
========= ======= ======== =======
Time and savings deposits:
Interest-bearing transaction accounts $ 7,768 13 0.67% $ 6,350 $ 26 1.64%
Money market deposit accounts. 109,774 333 1.21% 101,451 610 2.41%
Savings accounts 31,724 79 1.00% 28,630 156 2.18%
Certificates of deposit, $100,000 or more 57,910 517 3.57% 49,562 707 5.71%
Other certificates of deposit 137,307 1,596 4.65% 144,652 2,130 5.89%
--------- ------- -------- -------
Total time and savings deposits 344,483 2,538 2.95% 330,645 3,629 4.39%
Federal funds purchased and securities sold
under agreement to repurchase 23,052 96 1.67% 24,952 228 3.66%
Federal Home Loan Bank advances 25,000 384 6.14% 25,000 384 6.14%
Other short term borrowings 1,273 5 1.57% 1,897 17 3.58%
--------- ------- -------- -------
Total interest bearing liabilities. $ 393,808 3,023 3.07% $382,494 4,258 4.45%
Net interest income/yield $ 5,795 4.69% $ 5,057 4.27%
======= ===== ======= =====
- ------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------
Loans (net of unearned income)** $ 352,760 $13,459 7.63% $ 325,034 $13,917 8.56%
Investment securities:
Taxable 81,342 2,169 5.33% 71,207 2,122 5.96%
Tax-exempt 49,601 1,815 7.32% 52,694 1,933 7.34%
--------- ------- -------- -------
Total investment securities 130,943 3,984 6.09% 123,901 4,055 6.55%
Federal funds sold. 10,985 91 1.66% 15,757 380 4.82%
--------- ------- -------- -------
Total earning assets $ 494,688 $17,534 7.09% $ 464,692 $18,352 7.90%
========= ======= ========= =======
Time and savings deposits:
Interest-bearing transaction accounts $ 7,497 $ 23 0.61% $ 5,979 $ 58 1.94%
Money market deposit accounts 107,805 650 1.21% 97,895 1,318 2.69%
Savings accounts 31,028 154 0.99% 28,391 346 2.44%
Certificates of deposit, $100,000 or more 54,621 1,041 3.81% 48,265 1,389 5.76%
Other certificates of deposit 139,586 3,321 4.76% 142,740 4,286 6.01%
--------- ------- -------- -------
Total time and savings deposits 340,537 5,189 3.05% 323,270 7,397 4.58%
Federal funds purchased and securities sold
under agreement to repurchase 24,210 199 1.64% 25,578 543 4.25%
Federal Home Loan Bank advance 25,000 763 6.10% 25,000 763 6.10%
Other short term borrowings 2,024 15 1.48% 1,944 43 4.42%
--------- ------- -------- -------
Total interest bearing liabilities $ 391,771 6,166 3.15% $ 375,792 8,746 4.65%
Net interest income/yield $11,368 4.60% $ 9,606 4.13%
======= ===== ======= =====
* Tax equivalent yields based on 34% tax rate.
** Nonaccrual loans are included in the average
loan balances and income on such loans is
recognized on a cash basis.
9
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 $700 thousand for the first six
months of 2002, up from $400 thousand in the comparable period in
2001. Loans charged off (net of recoveries) were $385 thousand
compared with loans charged off (net of recoveries) of $508
thousand in the first six months of 2001. On an annualized basis
net loan charge-offs were 0.21% of total loans for the first half
of 2001 compared with 0.31% for the same period in 2001.
On June 30, 2002 nonperforming assets totaled $1.52 million
compared with $1.59 million on June 30, 2001. The June 2002 total
consisted of $667 thousand in foreclosed real estate, $680
thousand in former branch sites now listed for sale, and $169
thousand in nonaccrual loans. The June 2001 total consisted of
$940 thousand in foreclosed real estate, $165 thousand in a
former branch site listed for sale and $483 thousand in
nonaccrual loans. Loans still accruing interest but past due 90
days or more increased to $647 thousand as of June 30, 2002
compared with $208 thousand as of June 30, 2001.
The allowance for loan losses on June 30, 2002 was $4.21 million
compared with $3.54 million on June 30, 2001. It represented a
multiple of 2.8 times nonperforming assets and 24.9 times
nonperforming loans. The allowance for loan losses was 1.16% and
1.06% of loans on June 30, 2002 and 2001 respectively.
Other Income
- ------------
For the second quarter of 2002 other income increased $265
thousand, or 16.53%, and for the six months ended June 30, 2002
other income increased $425 thousand or 13.78%. In both periods,
the increase in income is attributed to increases in service
charges on deposit accounts, other service charges, commissions
and fees, mortgage brokerage income, foreclosed property income
and bank owned life insurance income.
Other Expenses
- --------------
For the second quarter of 2002 other expenses increased $328
thousand or 7.81% over the second quarter of 2001. For the six
months ending June 2002 other expenses increased $693 thousand or
8.43% over the same period in 2001. For the six months ended
June 30, 2002, salaries and employee benefits increased $413
thousand or 8.43%. Occupancy expenses increased $22 thousand or
4.08%. Other operating expenses increased $259 thousand or
13.20%.
Assets
- ------
At June 30, 2002 total assets were $535.63 million, up 3.25% from
$518.76 million at December 31, 2001. Total loans grew $16.83
million or 4.86%.
Investment securities and federal funds sold decreased by $2.93
million, or 2.07%, in 2002. Bank owned life insurance increased
$5.86 million due to the purchase of policies in 2002. Total
deposits increased $15.67 million, or 3.80% in 2002 and demand
note balances to the United States Treasury increased $4.38
million from year-end 2001.
10
Capital Ratios
- --------------
The Company's capital position remains strong as evidenced by the
regulatory capital measurements. At June 30, 2002 the Tier I
capital ratio was 13.96%, the total capital ratio was 15.06% and
the leverage ratio was 10.04%. These ratios were all well above
the regulatory minimum levels of 4.00%, 8.00%, and 3.00%,
respectively.
Capital Resources
- -----------------
Subsequent to the end of the second quarter, the Company sold a
vacant branch site that was transferred to OREO in the first
quarter of 2002. Land was purchased in Chesapeake for an
additional branch location. The Company continues to expand the
implementation of the new imaging system by moving forward with
the use of imaged signature cards in 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 moderate deposit growth in the second
quarter of 2002. Loan growth for the first six months of 2002
exceeded targeted projections. Management considers the
liquidity of the Company to be adequate. 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 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.
Critical Accounting Policies
- ----------------------------
The Company's consolidated financial statements and accompanying
notes have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis. The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods.
The Company continually evaluates the accounting policies and
estimates it uses to prepare the consolidated financial
statements. In general, management's estimates are based on
historical experience, on information from third party
professionals and on various other assumptions that are believed
to be reasonable under the facts and circumstances. Actual
results could differ from those estimates made by management.
11
Allowance for Loan Losses
- -------------------------
The allowance for loan losses is an estimate of the losses that
may be sustained in our loan portfolio. The allowance is based
on two basic principles of accounting. (1) Statement of
Financial Accounting Standards (SFAS) No. 5 "Accounting for
Contingencies", which requires that losses be accrued when they
are probable of occurring and estimable and (2) SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan", which
requires that losses be accrued based on the differences between
that value of collateral, present value of future cash flows or
values that are observable in the secondary market and the loan
balance.
In evaluating the adequacy of the allowance for loan losses, the
Company has divided the loan portfolio into six pools of loans.
Allocation percentages are applied to the loan pools utilizing
the following factors:
1. economic trends and conditions
2. trends in volume and terms of loans
3. delinquency and non-accruals
4. lending policies
5. lending management and staff
6. concentrations of credit
The Company also maintains a four-year loss experience history on
each category of loan. Using the six factors listed above,
management can modify the allocation from the four-year
historical average.
Changes in the financial condition of individual borrowers, in
economic conditions, in historical loss experience and in the
conditions of the various markets in which collateral may be sold
all affect the required level of the allowance for loan losses
and the associated provision for loan losses.
Deferred Loan Fees/Costs
- ------------------------
As part of the lending process, the Company receives fees from
borrowers or potential borrowers related to loans underwritten.
All origination fees received in the origination of a loan that
are not pass-through fees, and certain direct origination costs
are deferred and amortized over the life of the loan.
Other Real Estate Owned
- -----------------------
The Company records Other Real Estate Owned on the financial
statement at fair value. Fair value is typically determined
based on appraisals by third parties, less estimated costs to
sell. The Company monitors the fair value of Other Real Estate
Owned and adjusts the carrying value on the financial statement
accordingly.
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Income Taxes
- ------------
The Company recognizes expense for federal income and state bank
franchise taxes payable as well as deferred federal income taxes
for estimated future tax effects of temporary differences between
the tax basis of assets and liabilities and amounts reported in
the consolidated financial statements. Income and franchise tax
returns are subject to audit by the IRS and state taxing
authorities. Income and franchise tax expense for current and
prior periods is subject to adjustment based on the outcome of
such audits. The Company believes it has adequately provided for
all taxes payable.
13
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, 2002. There were $158 million more in liabilities
than assets subject to repricing within three months. As of
December 31, 2001, the Company had $125 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 $148.2 million; which consist of interest
checking, money market, and savings accounts; are less interest
sensitive than other market driven deposits. In a rising rate
environment these deposit rates have historically lagged behind
the changes in earning asset rates, thus mitigating somewhat the
impact from the liability sensitivity position.
Market risk is the risk of loss due to changes in instrument
values or earnings variations caused by changes in interest
rates, commodity prices and market variables such as equity price
risk. Old Point Financial Corporation's equity price risk is
immaterial and the company's primary exposure is to interest rate
risk.
Non-trading market risk is the risk to net income from changes in
interest rates on asset and liabilities, other than trading. The
risk arises through the potential mismatch resulting from timing
differences in repricing of loans and deposits. Old Point
Financial Corporation monitors this risk by reviewing the timing
differences and using a portfolio rate shock model that projects
various changes in interest income under a changing rate
environment of up to plus or minus 300 basis points. The rate
shock model reveals that a 100 basis point drop in rates would
cause approximately a 0.82% increase in net income. The rate
shock model reveals that a 100 basis point rise in rates would
cause approximately a 0.27% increase in net income and that a 200
basis point rise in rates would cause approximately a 0.72%
decrease in net income at June 30, 2002.
14
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 2002.
15
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 13, 2002
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
16