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, 1998
[ ] 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, 1998.
Class Outstanding at October 31, 1998
Common Stock, $5.00 par value 2,575,444 shares
<PAGE>
OLD POINT FINANCIAL CORPORATION
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements...........................................1
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997.............1
Consolidated Statement of Earnings
Three months ended September 30, 1998 and 1997..............2
Nine months ended September 30, 1998 and 1997...............2
Consolidated Statement of Cash Flows
Nine months ended September 30, 1998 and 1997..............3
Consolidated Statements of Changes in Stockholders' Equity
Nine months ended September 30, 1998 and 1997..............4
Notes to Consolidated Financial Statements........................5
Parent Only Balance Sheets
September 30, 1998 and December 31, 1997................6
Parent Only Statement of Earnings
Three months ended September 30, 1998 and 1997..........6
Nine months ended September 30, 1998 and 1997...........6
Parent Only Statement of Cash Flows
Three months ended September 30, 1998 and 1997..........7
Nine months ended September 30, 1998 and 1997...........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)
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<CAPTION>
September 30, December 31,
Consolidated Balance Sheets 1998 1997
(Dollars in Thousands)
Assets
<S> <C> <C>
Cash and due from banks........................ $ 8,473,684 $ 12,208,408
Investments:
Securities available for sale, at market..... 74,063,267 67,546,008
Securities to be held to maturity............ 59,918,168 28,979,825
Trading account securities..................... --- ---
Federal funds sold............................. 6,897,899 6,977,386
Loans, total .................................. 230,540,008 221,743,937
Less reserve for loan losses............... 2,745,958 2,671,174
____________ ____________
Net loans.............................. 227,794,050 219,072,763
Bank premises and equipment.................... 12,036,142 9,742,209
Other real estate owned........................ 483,864 773,864
Other assets................................... 4,258,604 3,370,689
____________ ____________
Total assets.............................. $393,925,678 348,671,152
____________ ____________
____________ ____________
Liabilities
Noninterest-bearing deposits................... $ 58,144,547 $ 52,359,579
Savings deposits............................... 114,990,788 99,991,102
Time deposits.................................. 153,660,303 134,749,126
____________ ____________
Total deposits.............................. 326,795,638 287,099,807
Federal funds purchased and securities sold
under agreement to repurchase.............. 24,414,154 20,164,902
Interest-bearing demand notes issued to the
United States Treasury and other
liabilities for borrowed.................... 1,336,205 4,025,090
Other liabilities.............................. 1,713,379 1,048,885
____________ ____________
Total liabilities........................... 354,259,376 312,338,684
Stockholders' Equity
Common stock, $5.00 par value.................. 12,873,220 12,830,860
1998 1997
Shares Outstanding....2,574,644 2,566,172
Surplus........................................ 9,996,866 9,693,301
Undivided profits.............................. 15,491,481 13,097,716
Unrealized gain/(loss) on securities........... 1,304,735 710,591
____________ ____________
Total stockholders' equity................. 39,666,302 36,332,468
Total liabilities and stockholders' equity. $393,925,678 $348,671,152
____________ ____________
____________ ____________
1
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<TABLE>
<CAPTION>
___________________________________________________ _______________________ _______________________
Three Months Ended Nine Months Ended
Consolidated Statements of Earnings September 30, September 30,
1998 1997 1998 1997
____________________________________________________ _______________________ _______________________
(Dollars in Thousands except per share amounts)
Interest Income
<S> <C> <C> <C> <C>
Interest and fees on loans..................... $5,065,052 $4,813,519 $15,111,942 $13,863,861
Interest on federal funds sold................. 132,098 86,515 455,373 189,410
Interest on securities:
Taxable..................................... 1,406,532 1,133,518 3,896,480 3,390,617
Exempt from Federal income tax.............. 462,728 339,442 1,231,401 919,222
Interest on trading account.................... 0 0 0 0
_______________________ ________________________
1,869,260 1,472,960 5,127,881 4,309,839
_______________________ ________________________
Total interest income...................... 7,066,410 6,372,994 20,695,196 18,363,110
Interest Expense
Interest on savings deposits................... 888,466 700,397 2,496,733 2,065,006
Interest on time deposits...................... 2,118,854 1,794,177 6,063,180 5,111,683
Interest on federal funds purchased and
securities sold under agreement to repurchase 301,014 243,406 757,466 620,535
Interest on demand notes (note balances) issued
to the United States Treasury
and on other borrowed........................ 21,562 22,030 74,408 73,727
_______________________ ________________________
Total interest expense..................... 3,329,896 2,760,010 9,391,787 7,870,951
Net interest income............................ 3,736,514 3,612,984 11,303,409 10,492,159
Provision for loan losses...................... 150,000 100,000 500,000 300,000
_______________________ ________________________
Net interest income after provision
for loan losses............................... 3,586,514 3,512,984 10,803,409 10,192,159
Other Income
Income from fiduciary activities............... 449,850 434,805 1,349,550 1,304,505
Service charges on deposit accounts............ 495,878 431,440 1,402,651 1,284,963
Other service charges, commissions and fees.... 153,124 153,252 497,178 424,365
Other operating income......................... 74,621 37,530 275,625 195,356
Security gains (losses)........................ 0 0 9 (4,068)
Trading account income......................... 0 0 0 0
_______________________ ________________________
Total other income......................... 1,173,473 1,057,027 3,525,013 3,205,121
Other Expenses
Salaries and employee benefits................. 1,960,710 1,941,618 5,719,487 5,757,690
Occupancy expense of Bank premises............. 251,186 207,132 694,549 624,658
Furniture and equipment expense................ 289,313 277,825 875,985 814,473
Other operating expenses....................... 760,652 761,831 2,347,527 2,346,816
_______________________ ________________________
Total other expenses....................... 3,261,861 3,188,406 9,637,548 9,543,637
_______________________ ________________________
Income before taxes............................ 1,498,126 1,381,605 4,690,874 3,853,643
Applicable income taxes ....................... 343,000 335,600 1,194,100 970,276
_______________________ ________________________
Net income..................................... $1,155,126 $1,046,005 $ 3,496,774 $ 2,883,367
_______________________ ________________________
_______________________ ________________________
Per Share
Based on weighted average number of
common shares outstanding.................... 2,573,235 2,565,496 2,568,964 2,559,356
Basic Earnings Per Share....................... $ 0.45 $ 0.41 $ 1.36 $ 1.13
Diluted Earnings Per Share..................... $ 0.44 $ 0.41 $ 1.34 $ 1.12
2
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<TABLE>
<CAPTION>
________________________________________________________________________________________________
OLD POINT FINANCIAL CORPORATION Nine Months Ended
Consolidated Statements of Cash Flows Sept 30,
(Unaudited) 1998 1997
________________________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income.................................................... $ 3,496,774 $ 2,883,367
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................... 717,882 703,477
Provision for loan losses................................... 500,000 300,000
(Gains) loss on sale of investment securities, net.......... (9) 4,068
Net amortization & accretion of securities.................. 121,766 310,772
Net (increase) decrease in trading account.................. 0 0
(Increase) in other real estate owned....................... (296,909) (565,000)
(Increase) decrease in other assets
(net of tax effect of FASB 115 adjustment)................ (1,193,989) (420,955)
Increase (decrease) in other liabilities.................... 664,494 429,063
____________ ____________
Net cash provided by operating activities................. 4,010,009 3,644,792
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities .................................... (64,422,396) (18,401,556)
Proceeds from maturities & calls of securities ............. 27,745,253 9,749,000
Proceeds from sales of available - for - sale securities.... 0 6,217,797
Proceeds from sales of held - to - maturity securities...... 0 0
Loans made to customers..................................... (103,860,859) (93,637,350)
Principal payments received on loans........................ 94,639,573 72,744,454
Proceeds from sales of other real estate owned.............. 586,910 145,000
Purchases of premises and equipment......................... (3,011,815) (698,872)
(Increase) decrease in federal funds sold................... 79,487 (4,602,592)
____________ ____________
Net cash provided by (used in) investing activities....... (48,243,847) (28,484,119)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in non-interest bearing deposits........ 5,784,968 5,201,772
Increase (decrease) in savings deposits..................... 14,999,686 1,957,402
Proceeds from the sale of certificates of deposit........... 49,570,250 46,257,128
Payments for maturing certificates of deposit............. (30,659,073) (34,137,125)
Increase (decrease) in federal funds purchased &
repurchase agreements...................................... 4,249,252 2,313,076
Increase (decrease) in other borrowed money................. (2,688,885) 1,726,178
Proceeds from issuance of common stock...................... 142,138 230,431
Dividends paid.............................................. (899,222) (767,859)
____________ ____________
Net cash provided by financing activities................. 40,499,114 22,781,003
Net increase (decrease) in cash and due from banks........ (3,734,724) (2,058,324)
Cash and due from banks at beginning of period............ 12,208,408 10,988,495
____________ ____________
Cash and due from banks at end of period.................. $ 8,473,684 $ 8,930,171
____________ ____________
____________ ____________
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest.................................................. $9,212,018 $7,780,638
Income taxes.............................................. 1,350,000 1,025,000
See accompanying notes
- 3 -
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<TABLE>
<CAPTION>
OLD POINT FINANCIAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
____________________________________________________________________________________________________________________________
Unrealized
Common Stock Undivided Gain/(Loss)
Shares Amount Surplus Profits On Securities Total
_________________________________________________________________________________
FOR NINE MONTHS ENDED SEPTEMBER 30, 1998
<S> <C> <C> <C> <C> <C> <C>
Balance at end of period ................... 2,566,172 $12,830,860 $9,693,301 $13,097,716 $710,591 $36,332,468
Net Income ................................. -- -- -- 3,496,774 -- 3,496,774
Sale of Common Stock ....................... 8,472 42,360 303,565 (203,787) -- 142,138
Cash dividends ............................. -- -- -- (899,222) -- (899,222)
Increase in unrealized gain on securities . -- -- -- -- 594,144 594,144
___________ ___________ ___________ ___________ ___________ ___________
Balance at end of period ................... 2,574,644 $12,873,220 $9,996,866 $15,491,481 $1,304,735 $39,666,302
FOR NINE MONTHS ENDED SEPTEMBER 30, 1997
<S> <C> <C> <C> <C> <C> <C><S>
Balance at beginning of period ............. 1,273,546 $6,367,730 $9,345,091 $16,638,880 $48,199 $32,399,900
Net income ................................. -- -- -- 2,883,367 -- 2,883,367
Sale of common stock ....................... 9,540 47,700 348,210 (165,479) -- 230,431
Cash dividends ............................. -- -- -- (767,859) -- (767,859)
Increase in unrealized gain on securities . -- -- -- -- 482,674 482,674
___________ ___________ ___________ ___________ ___________ ___________
Balance at end of period ................... 1,283,086 $6,415,430 $9,693,301 $18,588,909 $530,873 $35,228,513
See accompanying note
-4-
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<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 1997
Annual Report to Shareholders and Form 10-K.
2. Earnings per common share outstanding are computed by
dividing income by the weighted average number of
outstanding common shares for each period presented.
5
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<TABLE>
<CAPTION>
______________________________________________________________________________
OLD POINT FINANCIAL CORPORATION
Parent only Balance Sheets September 30, December 31,
(Unaudited) 1998 1997
______________________________________________________________________________
<S> <C> <C>
Assets
Cash in bank................................ $ 274,021 $ 289,230
Investment Securities....................... 2,117,277 1,877,175
Total Loans................................. 0 0
Investment in Subsidiary.................... 37,290,279 34,170,604
Equipment................................... 0 0
Other assets................................ 11,125 7,759
__________ __________
Total Assets................................ $39,692,702 $ 36,344,768
__________ __________
__________ __________
Liabilities and Stockholders' Equity
Total Liabilities........................... $ 26,400 $ 12,300
Stockholders' Equity........................ 39,666,302 36,332,468
__________ __________
Total Liabilities & Stockholders' Equity.... $ 39,692,702 $ 36,344,768
__________ __________
__________ __________
<CAPTION>
________________________________________________________________________________________________________
OLD POINT FINANCIAL CORPORATION Three Months Ended: Nine Months Ended:
Parent only Income Statements September 30, September 30,
(Unaudited) 1998 1997 1998 1997
________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Income
Cash dividends from Subsidiary.............. $ 950,000 $ 250,000 $ 950,000 $ 750,000
Interest and fees on loans.................. 0 0 0 579
Interest income from investment securities.. 79,281 26,978 79,281 78,683
Gains (losses) from sale of
investment securities.................... 0 0 0 0
Other income................................ 0 0 0 0
__________ __________ __________ __________
Total Income................................ 1,029,281 276,978 1,029,281 829,262
Expenses
Salaries and employee benefits.............. 0 0 0 0
Other expenses.............................. 37,406 10,192 37,406 42,706
__________ __________ __________ __________
Total Expenses.............................. 37,406 10,192 37,406 42,706
__________ __________ __________ __________
Income before taxes & undistributed
net income of subsidiary................ 991,875 266,786 991,875 786,556
Income tax.................................. 14,100 5,600 14,100 13,000
Net income before undistributed
net income of subsidiary.................. 977,775 261,186 977,775 773,556
__________ __________ __________ __________
Undistributed net income of subisdiary...... 2,518,999 784,819 2,518,999 2,109,811
__________ __________ __________ __________
Net Income.................................. $ 3,496,774 $ 1,046,005 $ 3,496,774 $ 2,883,367
__________ __________ __________ __________
__________ __________ __________ __________
6
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<TABLE>
<CAPTION>
____________________________________________________________________________
OLD POINT FINANCIAL CORPORATION Nine Months Ended:
Parent only Statements of Cash Flows September 30,
(Unaudited) 1998 1997
____________________________________________________________________________
Cash Flows from Operating Activities:
<S> <C> <C>
Net Income.................................. $ 3,496,774 $ 2,883,367
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed income
of subsidiary.......................... (2,518,999) (2,109,811)
Depreciation.............................. 0 0
Gains(losses) on sale of securities (net) 0 0
(Increase) decrease in other assets..... 0 52,614
Increase (decrease) in other liabilities 14,100 6,100
___________ ___________
Net cash provided by operating activities... 991,875 832,270
Cash flows from investing activities:
(Increase)decrease in investment securities. (250,000) (200,000)
Sale of equipment 0 14,411
Purchase of equipment....................... 0 0
Repayment of loans by customers............. 0 49,884
___________ ___________
Net cash provided by investing activities... (250,000) (135,705)
Cash flows from financing activities:
Proceeds from issuance of common stock...... 142,138 230,431
Dividends paid.............................. (899,222) (767,859)
___________ ___________
Net cash provided by financing activities... (757,084) (537,428)
Net increase (decrease) in cash &
due from bank............................. (15,209) 159,137
Cash & due from banks at beginning of period 289,230 142,683
___________ ___________
Cash & due from banks at end of period...... $ 274,021 $ 301,820
___________ ___________
___________ ___________
7
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<PAGE>
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Summary
Net income for the third quarter of 1998 increased 10% to
$1,155,126 from $1,046,005 for the comparable period in 1997.
Basic earnings per share were $0.45 in the third quarter of 1998
compared with $0.41 in 1997.
For the nine months ended September 30, 1998 net income
increased 21% to $3,496,774 from $2,883,367 in 1997. Basic
earnings per share were $1.36 for the first nine months of 1998
compared with $1.13 in 1997.
Return on average assets was 1.19% for the third quarter of
1998 and 1.24% for the comparable period in 1997. Return on
average equity was 11.81% for the third quarter of 1998 and
11.96% for the third quarter of 1997.
For the nine months ended September 30, 1998 and 1997 return
on average assets was 1.24% and 1.17% respectively. Return on
average equity was 12.26% in 1998 and 11.35% in 1997.
Net Interest Income
Net interest income, on a fully tax equivalent basis,
increased $185 thousand, or 5%, for the third quarter of 1998
over 1997. Average earning assets increased 15% 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 4.78% in 1997 to 4.37% in 1998.
For the nine months ended September 30, 1998 net interest
income increased $963 thousand, or 9%, over the comparable period
in 1997. Average earning assets increased 14% and the net
interest yield decreased from 4.77% in 1997 to 4.55% in 1998.
This increase in earning assets is due to growth in the
investment and loan portfolios. During 1998 there has been a
shift in investment securities from taxable to tax exempt which
have higher tax equivalent yields. Interest rates on deposits
increased 19 basis points during the first nine months of 1998
over the comparable period in 1997 while loan rates increased
only 4 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
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<CAPTION>
______________________________________________ ________________________________________________________________________
OLD POINT FINANCIAL CORPORATION
NET INTEREST INCOME ANALYSIS For the quarter ended September 30,
(Fully taxable equivalent basis) * 1998 1997
______________________________________________ ________________________________________________________________________
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)**............. $228,335 5,082 8.90% $214,992 4,835 9.00%
Investment securities:***
Taxable.................................... 91,557 1,406 6.14% 72,088 1,131 6.28%
Tax-exempt................................. 36,625 701 7.66% 25,414 515 8.11%
________ ________ ________ ________
Total investment securities.............. 128,182 2,107 6.58% 97,502 1,646 6.75%
Federal funds sold........................... 9,252 132 5.71% 6,009 86 5.72%
________ ________ ________ ________
Total earning assets....................... $365,769 $7,321 8.01% $318,503 $6,567 8.25%
Time and savings deposits:
Interest-bearing transaction accounts...... $19,643 $108 2.20% $25,446 $140 2.20%
Money market deposit accounts.............. 69,982 601 3.44% 48,550 381 3.14%
Savings accounts........................... 26,081 180 2.76% 25,954 179 2.76%
Certificates of deposit, $100,000 or more.. 26,677 385 5.77% 20,655 307 5.95%
Other certificates of deposit.............. 124,156 1,733 5.58% 110,022 1,487 5.41%
________ ________ ________ ________
Total time and savings deposits.......... 266,539 3,007 4.51% 230,627 2,494 4.33%
Federal funds purchased and securities sold
under agreement to repurchase.............. 24,314 301 4.95% 20,301 244 4.81%
Other short term borrowings.................. 1,541 21 5.45% 1,560 22 5.64%
________ ________ ________ ________
Total interest bearing liabilities......... $292,394 3,329 4.55% $252,488 2,760 4.37%
Net interest income/yield.................... $3,992 4.37% $3,807 4.78%
________ ________ ________ ________
________ ________ ________ ________
<CAPTION>
____________________________________________________________
For the nine months ended September 30,
1998 1997
__________________________________________________________
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)**............. $225,059 $15,163 8.98% $207,666 $13,928 8.94%
Investment securities:***
Taxable.................................... 84,174 3,896 6.17% 72,915 3,388 6.20%
Tax-exempt................................. 31,542 1,866 7.89% 22,876 1,393 8.12%
________ ________ ________ ________
Total investment securities.............. 115,716 5,762 6.64% 95,791 4,781 6.65%
Federal funds sold........................... 10,721 455 5.66% 4,554 189 5.53%
________ ________ ________ ________
Total earning assets....................... $351,496 $21,380 8.11% $308,011 $18,898 8.18%
Time and savings deposits:
Interest-bearing transaction accounts...... $19,880 $321 2.15% $25,891 $428 2.20%
Money market deposit accounts.............. 65,593 1,638 3.33% 47,405 1,108 3.12%
Savings accounts........................... 26,241 538 2.73% 25,816 529 2.73%
Certificates of deposit, $100,000 or more.. 25,441 1,081 5.67% 18,433 787 5.69%
Other certificates of deposit.............. 119,847 4,982 5.54% 107,561 4,325 5.36%
________ ________ ________ ________
Total time and savings deposits.......... 257,002 8,560 4.44% 225,106 7,177 4.25%
Federal funds purchased and securities sold
under agreement to repurchase.............. 21,419 757 4.71% 17,631 621 4.70%
Other short term borrowings.................. 1,799 74 5.48% 1,805 74 5.47%
________ ________ ________ ________
Total interest bearing liabilities......... $280,220 9,391 4.47% $244,542 7,872 4.29%
Net interest income/yield.................... $11,989 4.55% $11,026 4.77%
_________ ________ ________ ________
_________ ________ ________ ________
* Tax equivalent yields based on 34% tax rate.
** Nonaccrual loans are included in the average loan balances and income on such loans is recognized on a cash basis
*** All investment securities are reported at amortized cost for this schedule.
9
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<PAGE>
Provision/Allowance for Loan Losses
The provision for loan losses was $500,000 for the first
nine months of 1998, up $200,000 over the comparable period in
1997. Loans charged off (net of recoveries) were $425,215 in the
first nine months of 1998, compared with $156,591 for the same
period in 1997. The increase is attributable to second quarter
deficiencies recorded on foreclosed real estate as well as a
commercial loan relationship charged off due to bankruptcy. On
an annualized basis net loan charge-offs were 0.25% of total
loans for the first nine months of 1998 compared with .10% for
the same period in 1997.
On September 30, 1998 nonperforming assets totalled $838
thousand compared with $1.84 million on September 30, 1997. 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. The September 1997
total consisted of $420 thousand in foreclosed real estate, $354
thousand in a former branch site, and $1.063 million in
nonaccrual loans. Loans still accruing interest but past due 90
days or more increased to $1.18 million as of September 30, 1998
compared with $769 million on September 30, 1997.
The allowance for loan losses on September 30, 1998 was $2.75
million. It represented a multiple of 3.28 times nonperforming
assets and 7.76 times nonperforming loans. The allowance for
loan losses on September 30, 1998 was 1.19% of loans compared to
1.13% at September 30, 1997.
Other Income
Other income increased $116,446, or 11%, for the third
quarter of 1998 over the same period in 1997. Income from
service charges on deposit accounts increased 14% mainly due to
an increase of $20.8 million in checking and savings deposits in
1998.
For the nine months ended September 30, 1998 other income
increased $319,892 or 10% from 1997. Contributing to the higher
income in 1998 were increases in deposit service charges, debit
card income and mortgage brokerage income.
Other Expenses
Other expenses increased $73,455, or 2%, in the third
quarter of 1998 over 1997. Occupancy expenses were up 21% due to
the opening of the new Oyster Point Office. Furniture and
equipment expenses increased 4% due to higher depreciation on
computer equipment and furniture for the new office building.
For the nine months ended September 30, 1998 other expenses
increased $93,911 or 1%, from 1997. As mentioned above the
increase is primarily due occupancy and furniture & equipment
expenses related to the opening of the new office and the
refurbishing of existing offices.
Financial Condition
At September 30, 1998 total assets were $393.9 million, up
13% from $348.7 million at December 31, 1997. Total loans grew
$8.8 million, or 4% and investment securities grew $37.5 million,
or 39%, in 1998. Total deposits increased $39.7 million, or 14%
in 1998 and demand note balances to the U. S. Treasury decreased
$2.69 million to $1.34 from $4.03 million at year end 1997.
10
<PAGE>
Capital Resources
The Company's capital position remains strong as evidenced
by the regulatory capital measurements. At September 30, 1998
the Tier I capital ratio was 14.95%, the total capital ratio was
16.02% and the leverage ratio was 9.81%. These ratios were all
well above the regulatory minimum levels of 4.00%, 8.00%, and
3.00%, respectively.
Liquidity and Interest Sensitivity
Liquidity is the ability of the Company to meet present and
future obligations to depositors and borrowers. As loan demand
increases, liquidity will be provided by liquidation of short
term investment securities as well as other means of financing
such as purchase of federal funds and demand note to the U.S.
Treasury.
The Company was liability sensitive as of September 30,
1998. There were $122.345 million more in liabilities than
assets subject to repricing within three months. Net interest
income should improve if interest rates fall since liabilities
will reprice faster than assets. Conversely, if interest rates
rise, net interest income should decline. It should be noted,
however, that the savings deposits; which consist of interest
checking, money market, and savings accounts; are less interest
sensitive than other market driven deposits. In a rising rate
environment these deposit rates have historically lagged behind
the changes in earning asset rates, thus mitigating somewhat the
impact from the liability sensitivity position. The table on
page 12 reflects the earlier of the maturity or repricing data
for various assets and liabilities as of September 30, 1998.
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 a new facility which is now home to the
Old Point Commercial Services as well as Trust and Financial
Services. The Company has also acquired property in Norge, VA on
which a full service branch office will be built. This office is
scheduled to be open in the first quarter of 1999.
Year 2000
The "Year 2000" problem relates to the fact that many
computer programs use two digits to define a year and assume that
the century is 1900. Therefore, these programs will not
recognize the turn of the century. For example, the year 1998 is
defined as "98" and the year 2003 is defined as "03". Because
the assumed century is 1900 computers recognize the year 2003,
defined as "03", as 1903. The Company is aware of the Year 2000
problem and is taking action to ensure that all of its computer
hardware and software will be Year 2000 compliant. The Company
has a five-step plan to identify, correct, upgrade and test all
of its hardware and software. This plan conforms to the standard
established by the Federal Financial Institutions Examination
Council (FFIEC). A Year 2000 project team has been assembled
which meets on a monthly basis to monitor progress and address
any new issues that might arise. The Company has identified and
11
<PAGE>
cataloged all of its hardware and software. Software and
hardware that is not Year 2000 compliant has been identified and
plans are being developed to upgrade and/or replace hardware and
software that is not Year 2000 compliant. Additionally, the
Company's vendors and major customers are being contacted to
determine their Year 2000 efforts so that the Company can plan
accordingly. The FFIEC standard requires banks to have a written
contingency plan in the event a mission critical application
fails. Old Point has developed this contingency plan to process
the core applications using personal computers until the core
application software can be repaired. The Company is on schedule
to meet the regulatory deadlines established by the FFIEC. The
Office of the Comptroller of the Currency (OCC) is responsible
for examining the Bank for compliance to the regulatory standard.
In addition, the internal audit department and the Company's
external certified public accountants will independently verify
and validate the processes the Company uses to test the
applications.
The Company is testing its core applications which process loans,
deposits and the general ledger. Fiserv provides the software
used to process these applications. Fiserv performed extensive
testing of its software and has stated that it is Year 2000
compliant under their test conditions. In addition, other
software that interfaces with the core application is also being
tested. This testing is expected to be complete by the first
quarter of 1999. The Company continues to upgrade other hardware
and software as needed. Any hardware or software purchased
subsequently will be tested for Year 2000 compliance.
The Company is dependent on public utility companies to supply
electricity, gas, water, sewage, and telecommunications. These
utility companies have provided Old Point with some information
regarding their status in becoming Year 2000 compliant. The Year
2000 project team continues to monitor their progress. The
Company has installed a diesel generator at the Main Office
location to provide electricity in the event of a power failure.
Operating and capital budgets incorporate projected expenditures
necessary to ensure that all systems are Year 2000 compliant.
Through September 30, 1998 the Company has spent approximately
$500,000 in capital expenditures to upgrade its computer hardware
and software to be Year 2000 compliant. In addition, the Company
has spent approximately $100,000 in operating expenses to test
its software applications and hardware for year 2000 compliance.
An additional $300,000 in capital expenditures is budgeted for
the remainder of 1998 and 1999 for Year 2000 hardware and
software upgrades as well as another $100,000 for operating
expenses to complete the testing for Year 2000 compliance. At
this time management does not believe that Year 2000 related
expenditures will have an adverse material effect on the Company.
12
<PAGE>
<TABLE>
<CAPTION>
_____________________________________________________________________________________
INTEREST SENSITIVITY ANALYSIS
As of September 30, 1998 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.............. 6,898 -- -- -- 6,898
Taxable investments............. 7,448 7,608 53,659 23,978 92,693
Tax-exempt investments.......... 100 266 1,553 39,369 41,288
________ ________ ________ ________ ________
Total investments............. 14,446 7,874 55,212 63,347 140,879
Loans:
Commercial.................... 19,635 2,598 34,449 3,869 60,551
Tax-exempt.................... 1,468 73 144 0 1,685
Installment................... 3,780 2,680 52,295 2,469 61,224
Real estate................... 19,719 10,087 56,896 19,459 106,161
Other......................... 461 -- 458 0 919
________ ________ ________ ________ ________
Total loans..................... 45,063 15,438 144,242 25,797 230,540
________ ________ ________ ________ ________
Total earning assets............ 59,509 23,312 199,454 89,144 371,419
Sources of funds
Interest checking deposits...... 20,912 -- -- -- 20,912
Money market deposit accounts... 68,308 -- -- -- 68,308
Regular savings accounts........ 25,771 -- -- -- 25,771
Certificates of deposit.........
$100,000 or more.............. 6,604 10,220 10,185 -- 27,009
Other time deposits............. 34,509 48,203 43,939 -- 126,651
Federal funds purchased and
securities sold under
agreements to repurchase...... 24,414 -- -- -- 24,414
Other borrowed money............ 1,336 -- 18 -- 1,354
________ ________ ________ ________ ________
Total interest bearing liabilities 181,854 58,423 54,142 0 294,419
Rate sensitivity GAP............ (122,345) (35,111) 145,312 89,144 77,000
Cumulative GAP.................. (122,345) (157,456) (12,144) 77,000
- 13 -
</TABLE>
<PAGE>
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 1998.
14
<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
November 13, 1998
By: /s/ Robert F Shuford
President and Director
Principal Executive Officer
By: /s/ Louis G Morris
Senior Vice President and Treasurer
Principal Financial and Accounting Officer
15
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 8,474
<INT-BEARING-DEPOSITS> 85
<FED-FUNDS-SOLD> 6,898
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 74,063
<INVESTMENTS-CARRYING> 59,919
<INVESTMENTS-MARKET> 60,736
<LOANS> 230,540
<ALLOWANCE> 2,746
<TOTAL-ASSETS> 393,926
<DEPOSITS> 326,796
<SHORT-TERM> 1,336
<LIABILITIES-OTHER> 1,713
<LONG-TERM> 18
0
0
<COMMON> 12,873
<OTHER-SE> 25,488
<TOTAL-LIABILITIES-AND-EQUITY> 393,926
<INTEREST-LOAN> 15,112
<INTEREST-INVEST> 5,128
<INTEREST-OTHER> 455
<INTEREST-TOTAL> 20,695
<INTEREST-DEPOSIT> 8,560
<INTEREST-EXPENSE> 9,392
<INTEREST-INCOME-NET> 11,303
<LOAN-LOSSES> 500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,638
<INCOME-PRETAX> 4,691
<INCOME-PRE-EXTRAORDINARY> 4,691
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,497
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.34
<YIELD-ACTUAL> 4.55
<LOANS-NON> 354
<LOANS-PAST> 1,179
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,328
<ALLOWANCE-OPEN> 2,671
<CHARGE-OFFS> 722
<RECOVERIES> 347
<ALLOWANCE-CLOSE> 2,746
<ALLOWANCE-DOMESTIC> 2,746
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
