U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1997 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (no fee required) For the transition period from to Commission File No. 0-12896 OLD POINT FINANCIAL CORPORATION (Name of issuer in its charter) Virginia 54-1265373 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 1 West Mellen Street, Hampton, Va. 23663 (Address of principal executive offices) (Zip Code) (757) 722-7451 (Issuer's telephone number) Securities registered pursuant to Section 12(b) of the Exchange Act: None Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock ($5.00 par value) (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 17, 1998 there were 2,566,172 shares of common stock outstanding and the aggregate market value of common stock of Old Point Financial Corporation held by nonaffiliates was approximately $66,506,312 based upon the last traded price per share known to Management. DOCUMENTS INCORPORATED BY REFERENCE NONE
OLD POINT FINANCIAL CORPORATION Form 10-K INDEX PART I 1 Item 1. Description of Business 1 General 1 Statistical Information 2 Item 2. Description of Property 13 Item 3. Legal Proceedings 13 Item 4. Submission of Matters to a Vote of Security Holders 13 PART II 13 Item 5. Market for Common Equity And Related Stockholder Matters 13 Item 6. Selected Financial Data 13 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 8. Financial Statements and Supplementary Data 18 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 34 PART III 35 Item 10. Directors and Executive Officers of the Registrant 35 Item 11. Executive Compensation 37 Item 12. Security Ownership of Certain Beneficial Owners and Management 38 Item 13. Certain Relationships and Related Transactions 38 PART IV 39 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8 39 -I-
PART I Item 1. Description of Business General Old Point Financial Corporation (the "Company") was incorporated under the laws of Virginia on February 16, 1984, for the purpose of acquiring all the outstanding common stock of The Old Point National Bank of Phoebus (the "Bank"), in connection with the reorganization of the Bank into a one bank holding company structure. At the annual meeting of the stockholders on March 27, 1984, the proposed reorganization was approved by the requisite stockholder vote. At the effective date of the reorganization on October 1, 1984, the Bank merged into a newly formed national bank as a wholly owned subsidiary of the Company, with each outstanding share of common stock of the Bank being converted into five shares of common stock of the Company. The Company has no other subsidiaries and does not engage in any activities other than acting as a holding company for the common stock of the Bank. The principal business of the Company is conducted through the Bank, which continues to conduct its business in substantially the same manner and from the same offices as it had done before the effective date of the reorganization. The Bank, therefore, accounts for substantially all of the consolidated assets and revenues of the Company. The Bank is a national banking association founded in 1922. The Bank has thirteen offices 1in the cities of Hampton and Newport News, and in James City and York County, Virginia, and provides a full range of banking and related financial services, including checking, savings, certificates of deposit, and other depository services, commercial, industrial, residential real estate and consumer loan services, safekeeping services and trust and estate services. As of December 31, 1997, the Company had assets of $348.7 million, loans of $221.7 million, deposits of $287.1 million, and stockholders' equity of $36.3 million. At year end, the Company and the Bank had a total of 221 employees, 42 of whom were part-time. Based on 1990 census figures, the population of the Bank's trade area, which includes Hampton, Newport News, Williamsburg, and James City and York County was approximately 394,000. This area's economy is heavily influenced by the two largest employers; military installations and shipbuilding and ship repair. These industries are impacted by reductions in defense spending and personnel. Some of our customers are either employed at the various military installations or at the shipyard, or they derive some or all of their business from these two major employers. There are numerous military installations in the area including Fort Monroe, Langley Air Force Base, and Fort Eustis. The consolidation of the Tactical Air Command and the Strategic Air Command into the Air Combat Command at Langley has somewhat mitigated the reduction in military employment in the area. The largest private employer on the Peninsula is the Newport News Shipbuilding and Drydock Company, which currently employees approximately 16,000 people. The banking industry is highly competitive in the Hampton/Newport News/Williamsburg area. There are approximately nine 2commercial banks actively engaged in business in the area in which the Bank operates, including six major statewide banking organizations. The Bank encounters competition for deposits and loans from banks, savings and loan associations and credit unions in the communities in which it operates. In addition, the Bank must compete for deposits in some instances with the money market mutual funds which are marketed nationally. The Bank is subject to regulation and examination by the Office of the Comptroller of the Currency, the Federal Reserve Board (the "Board"), and the Federal Deposit Insurance Corporation (the "FDIC"). 1
As a bank holding company within the meaning of the Bank Holding Company Act of 1956, the Company is subject to the ongoing regulation, supervision, and examination by the Federal Reserve Board (the "Board"). The Company is required to file with the Board periodic and annual reports and other information concerning its own business operations and those of its subsidiaries. In addition, prior Board approval must be obtained before the Company can acquire (i) ownership or control of any voting shares of another bank if, after such acquisition, it would control more than 5% of such shares, or (ii) all or substantially all of the assets of another bank or merge or consolidate with another bank holding company. A bank holding company is prohibited under the Bank Holding Company Act, with limited exceptions, from engaging in activities other than those of banking or of managing or controlling banks or furnishing services to its subsidiaries. Statistical Information The following statistical information is furnished pursuant to the requirements of Guide 3 (Statistical Disclosure by Bank Holding Companies) promulgated under the Securities Act of 1933. I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential The following table presents the distribution of assets, liabilities, and shareholders' equity by major categories with related average yields/rates. In these balance sheets, nonaccrual loans are included in the daily average loans outstanding. The following table sets forth a summary of changes in interest earned and paid attributable to changes in volume and changes in yields/rates. 2
<TABLE> <CAPTION> TABLE I AVERAGE BALANCE SHEETS, NET INTEREST INCOME* AND RATES* ___________________________________________________________________________________________________________________________________ For the years ended December 31, 1997 1996 1995 Dollars in thousands Average Average Average Interest Rates Interest Rates Interest Rates Average Income/ Earned/ Average Income/ Earned Average Income/ Earned Balance Expense Paid Balance Expense Paid Balance Expense Paid ___________________________________________________________________________________________________________________________________ ASSETS <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Loans $210,934 $19,288 9.14% $192,940 $17,681 9.16% $180,638 $16,221 8.98% Investment securities: Taxable 72,064 4,473 6.21% 78,734 4,736 6.02% 78,411 4,690 5.98% Tax-exempt 24,129 1,954 8.10% 15,194 1,292 8.50% 8,173 759 9.29% Total investment securities 96,193 6,427 6.68% 93,928 6,028 6.42% 86,584 5,449 6.29% Federal funds sold 4,981 276 5.54% 3,981 208 5.22% 4,666 264 5.66% Total earning assets 312,108 25,991 8.33% 290,849 23,917 8.22% 271,888 21,934 8.07% Reserve for loan losses (2,366) (2,240) (2,648) ----------- ----------- ----------- 309,742 288,609 269,240 Cash and due from banks 8,753 9,805 8,433 Bank premises and equipment 10,036 9,724 8,125 Other assets 3,624 4,874 5,376 ----------- ----------- ----------- Total assets $332,155 $313,012 $291,174 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Time and savings deposits: Interest-bearing transaction accounts $24,376 $537 2.20% $50,041 $1,210 2.42% $49,335 $1,303 2.64% Money market deposit accounts 49,302 1,528 3.10% 21,212 789 3.72% 19,375 765 3.95% Savings accounts 25,822 708 2.74% 26,354 722 2.74% 26,595 730 2.74% Certificates of deposit, $100,000 or more 19,122 1,135 5.94% 17,026 940 5.52% 13,789 760 5.51% Other certificates of deposit 108,665 5,813 5.35% 103,029 5,642 5.48% 97,431 5,290 5.43% ----------- ---- --------- ----- ----------- ------ Total time and savings deposits 227,287 9,721 4.28% 217,662 9,303 4.27% 206,525 8,848 4.28% Federal funds purchased and securities sold under agreement to repurchase 17,767 861 4.85% 14,688 706 4.81% 11,234 573 5.10% Other short term borrowings 1,857 99 5.33% 1,599 84 5.25% 1,996 110 5.51% ----------- ----- --------- ---- ----------- --- Total interest bearing liabilities 246,911 10,681 4.33% 233,949 10,093 4.31% 219,755 9,531 4.34% Demand deposits 49,432 46,198 40,843 Other liabilities 1,394 1,532 1,554 ----------- ----------- ----------- Total liabilities 297,737 281,679 262,152 Stockholders' equity 34,418 31,333 29,022 ----------- ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $332,155 $313,012 $291,174 =========== =========== =========== Net interest income/yield $15,310 4.91% $13,824 4.75% $12,403 4.56% ========== ======== ========== Total deposits $276,719 $263,860 $247,368 =========== =========== =========== * Computed on a fully taxable equivalent basis using a 34% rate </TABLE> 3
The following table sets forth a summary of changes in interest earned and paid attributable to changes in volume and changes in yields/rates. <TABLE> <CAPTION> TABLE II ANALYSIS OF CHANGE IN NET INTEREST INCOME * __________________________________________________________________________________________________________________________________ Year 1997 over 1996 Year 1996 over 1995 Year 1995 over 1994 Due to change in: Due to change in: Due to change in: Net Net Net Average Average Increase Average Average Increase Average Average Increase Dollars in Thousands Volume Rate (Decrease) Volume Rate (Decrease) Volume Rate (Decrease) __________________________________________________________________________________________________________________________________ INCOME FROM EARNING ASSETS <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Loans $1,649 ($42) $1,607 $1,105 $355 $1,460 $1,509 $795 $2,304 Investment Securities: Taxable (401) 138 (263) 19 27 46 (437) 195 (242) Tax-exempt 760 (98) 662 652 (119) 533 185 (54) 131 ----- ----- ----- ----- ----- ----- ----- ----- ----- Total investment securities 359 40 399 671 (92) 579 (252) 141 (111) Federal funds sold 52 16 68 (39) (17) (56) 42 91 133 ----- ----- ----- ----- ----- ----- ----- ----- ----- 2,060 14 2,074 1,737 246 1,983 1,299 1,027 2,326 INTEREST EXPENSE Interest bearing transaction accounts (621) (52) (673) 19 (112) (93) (37) 13 (24) Money market deposit accounts 1,045 (306) 739 73 (49) 24 (5) 157 152 Savings accounts (15) 1 (14) (7) (1) (8) (95) (1) (96) Certificate of deposits, $100,000 or more 116 79 195 178 2 180 122 160 282 Other certificates of deposit 309 (138) 171 304 48 352 642 798 1,440 ----- ----- ----- ----- ----- ----- ----- ----- ----- Total time and savings deposits 834 (416) 418 567 (112) 455 627 1,127 1,754 Federal funds purchased and securities sold under agreement to repurchase 148 7 155 176 (43) 133 (114) 184 70 Other short-term borrowings 14 1 15 (22) (4) (26) 63 19 82 ----- ----- ----- ----- ----- ----- ----- ----- ----- Total expense for interest bearing liabilities 996 (408) 588 721 (159) 562 576 1,330 1,906 Change in Net Interest Income $1,064 $422 $1,486 $1,016 $405 $1,421 $723 ($303) $420 </TABLE> * Computed on a fully taxable equvilent basis using a 34% rate. 4
Interest Sensitivity The following table reflects the earlier of the maturity or repricing data for various assets and liabilities as of December 31, 1997. <TABLE> <CAPTION> TABLE III INTEREST SENSITIVITY ANALYSIS ________________________________________________________________________________________ As of December 31, 1997 Within 4-12 1-5 Over 5 Dollars in thousands 3 Months Months Years Years Total ________________________________________________________________________________________ Uses of funds <S> <C> <C> <C> <C> <C> Federal funds sold............. $ 6,977 $ 0 $ 0 $ 0 $ 6,977 Taxable investments............ 9,387 10,542 42,637 5,064 67,630 Tax-exempt investments......... 561 104 1,617 26,614 28,896 ----- ----- ----- ----- ----- Total investments............ 16,925 10,646 44,254 31,678 103,503 Loans: Commercial................... 33,132 10,603 25,028 3,164 71,927 Tax-exempt................... 1,787 45 124 137 2,093 Installment.................. 4,593 12,870 34,309 3,128 54,900 Real estate.................. 20,206 20,715 36,590 14,639 92,150 Other........................ 263 0 411 0 674 ----- ----- ----- ----- ----- Total loans.................... 59,981 44,233 96,462 21,068 221,744 ===== ===== ===== ===== ===== Total earning assets........... $76,906 $54,879 $140,716 $52,746 $325,247 Sources of funds: Interest bearing transaction accounts..................... $20,503 $0 $0 $0 $20,503 Money market deposit accounts.. 53,606 0 0 0 53,606 Regular savings accounts....... 25,882 0 0 0 25,882 Certificates of deposit $100,000 or more............. 8,568 8,502 6,876 0 23,946 Other time deposits............ 29,787 40,955 40,061 0 110,803 Federal funds purchased and securities sold under agreements to repurchase..... 20,165 0 0 0 20,165 Other borrowed money........... 4,000 0 25 0 4,025 ----- ----- ----- ----- ----- Total interest bearing liabilities................... $162,511 $49,457 $46,962 $0 $258,930 Rate sensitivity GAP........... ($85,605) $5,422 $93,754 $52,746 $66,317 Cumulative GAP................. ($85,605) ($80,183) $13,571 $66,317 </TABLE> 5
The Company was liability sensitive as of December 31, 1997. There were $85.6 million more in liabilities than assets subject to repricing within three months. This generally indicates that net interest income should improve if interest rates fall since liabilities will reprice faster than assets .It should be noted, however, that savings deposits; which consist of interest bearing transactions accounts, money market accounts, 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. II. Investment Portfolio Note 2 of the Notes to Financial Statements found in Item 8. Financial Statements and Supplementary Data of this Report on Form 10K presents the book and market value of investment securities on the dates indicated. The following table shows, by type and maturity, the book value and weighted average yields of investment securities at December 31, 1997. <TABLE> TABLE IV INVESTMENT SECURITY MATURITIES & YIELDS <CAPTION> _________________________________________________________________________________________________________ U.S.Govt/Agency State/Municipal Total Book Weighted Book Weighted Book Weighted Value Average Value Average Value Average Dollars in Thousands Yield Yield Yield _________________________________________________________________________________________________________ December 31, 1997 Maturities: <S> <C> <C> <C> <C> Within 1 year $14,513 6.38% $ 660 9.92% $15,173 6.53% After 1 year, but within 5 ye 42,656 6.26% 1,549 9.60% 44,205 6.38% After 5 years, but within 10 4,957 6.77% 11,065 8.24% 16,022 7.79% After 10 years 0 0.00% 14,569 7.91% 14,569 7.91% ------- ------- ------- TOTAL $62,126 6.33% $27,843 8.18% $89,969 6.90% December 31, 1996 $69,528 6.06% $20,015 8.17% $89,541 6.53% December 31, 1995 $74,238 6.02% $12,270 8.66% $86,508 6.39% </TABLE> Yields are calculated on a fully tax equivalent basis using a 34% rate. The book value of other marketable equity securities with no stated maturity totalled $5.48 million with a weighted average yield of 6.13%. These securities consist of an adjustable rate mortgage fund of $4.4 million yielding 5.69%, Federal Home Loan Bank stock of $945 thousand yielding 7.25%, Federal Reserve bank stock of $85 thousand yielding 6.00% and other securities of $50 thousand. The book value of other marketable securities with no stated maturity totalled $5.44 million, yielding 5.89%; and $5.31 million, yielding 6.03%; at December 31, 1996, and 1995 respectively. 6
III. Loan Portfolio The following table shows a breakdown of total loans by type at December 31 for years 1993 through 1997: <TABLE> <CAPTION> TABLE V LOANS ______________________________________________________________________________ As of December 31, 1997 1996 1995 1994 1993 Dollars in thousands ______________________________________________________________________________ <S> <C> <C> <C> <C> <C> Commercial and other $ 45,059 $ 28,944 $ 20,636 $ 17,806 $ 16,836 Real Estate Construction 3,836 5,213 4,093 1,991 2,353 Real Estate Mortgage 104,141 104,230 109,469 105,703 96,185 Tax Exempt 2,093 2,464 3,003 4,754 5,585 Installment Loans to Individuals 66,615 57,733 52,154 43,487 29,322 ----- ----- ----- ----- ----- Total $221,744 $198,584 $189,355 $173,741 $150,281 </TABLE> Based on Standard Industry Code, there are no categories of loans which exceed 10% of total loans other than the categories disclosed in the preceding table. The maturity distribution and rate sensitivity of certain categories of the Bank's loan portfolio at December 31, 1997 is presented below: <TABLE> <CAPTION> TABLE VI MATURITY SCHEDULE OF SELECTED LOANS ______________________________________________________________________________________ December 31, 1997 One year One through Over five Dollars in thousands or less five years years Total ______________________________________________________________________________________ <S> <C> <C> <C> <C> Commercial and other $14,157 $28,565 $2,337 $45,059 Real estate construction 3,616 220 0 3,836 ------- ------- ------ ------- Total $17,773 $28,785 $2,337 $48,895 Loans maturing after one year with: Fixed interest rate $24,377 $1,533 $25,910 Variable interest rate $ 4,408 $ 804 $ 5,212 </TABLE> 7
The following table presents information concerning the aggregate amount of nonaccrual, past due and restructured loans as of December 31 for the years 1993 through 1997. <TABLE> <CAPTION> TABLE VII NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS ________________________________________________________________________________________ As of December 31, 1997 1996 1995 1994 1993 Dollars in thousands ________________________________________________________________________________________ <S> <C> <C> <C> <C> <C> Nonaccrual loans $660 $1,550 $2,447 $2,955 $5,328 Accruing loans past due 90 days or more 455 1,342 248 837 458 Restructured loans none none none none none Interest income which would have been recorded under original loan terms 205 163 350 470 570 Interest income recorded during the period 485 222 131 188 239 </TABLE> Loans are placed in nonaccrual status if principal or interest has been in default for a period of 90 days or more unless the obligation is both well secured and in the process of collection. A debt is "well secured" if it is secured (i) by collateral in the form of liens on or pledges of real or personal property, including securities, that have a realizable value sufficient to discharge the debt in full or (ii) by the guaranty of a financially responsible party. A debt is "in the process of collection" if collection of the debt is proceeding in due course either through legal action, including judgment enforcement procedures, or, in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status. Potential problem loans consist of loans that, because of potential credit problems of the borrowers, have caused management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms. At December 31, 1997 such problem loans, not included in Table VII, amounted to approximately $2.5 million. The potential problem loans included two relationships in excess of $500 thousand. The potential problem loans are generally secured by residential and commercial real estate with appraised values exceeding the principal balance of the loan. IV. Summary of Loan Loss Experience The determination of the balance of the Allowance for Loan Losses is based upon a review and analysis of the loan portfolio and reflects an amount which, in management's judgment, is adequate to provide for possible future losses. Management's review includes monthly analysis of past due and nonaccrual loans and detailed periodic loan by loan analyses. The principal factors considered by management in determining the adequacy of the allowance are the growth and composition of the loan portfolio, historical loss experience, the level of nonperforming loans, economic conditions, the value and adequacy of collateral, and the current level of the allowance. 8
The following table shows an analysis of the Allowance for Loan Losses for the years 1993 through 1997. <TABLE> <CAPTION> TABLE VIII ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES ___________________________________________________________________________________________________ For the year ended December 31, 1997 1996 1995 1994 1993 Dollars in thousands ___________________________________________________________________________________________________ <S> <C> <C> <C> <C> <C> Balance at beginning of period $ 2,330 $ 2,251 $ 2,647 $ 2,692 $ 3,719 Charge Offs: Commercial, financial and agricultural 84 98 1,210 147 1,178 Real estate construction 0 0 0 0 0 Real estate mortgage 67 2 135 316 230 Installment Loans to individuals 717 825 375 148 179 ---- ---- ---- ---- ---- Total charge offs 868 925 1,720 611 1,587 Recoveries: Commercial, financial and agricultural 239 87 296 431 174 Real estate construction 0 0 0 0 0 Real estate mortgage 1 14 44 19 7 Installment Loans to individuals 369 303 159 91 129 ---- ---- ---- ---- ---- Total recoveries 609 404 499 541 310 Net charge offs 259 521 1,221 70 1,277 Additions charged to operations 600 600 825 25 250 ---- ---- ---- ---- ---- Balance at end of period $ 2,671 $ 2,330 $ 2,251 $ 2,647 $ 2,692 Selected loan loss statistics Loans (net of unearned income): End of period $221,744 $198,584 $189,355 $173,741 $150,282 Daily average $210,934 $192,940 $180,638 $160,204 $155,551 Net charge offs to average total loans 0.12% 0.27% 0.68% 0.04% 0.82% Provision for loan losses to average 0.28% 0.31% 0.46% 0.02% 0.16% Provision for loan losses to net charge offs 231.66% 115.16% 67.57% 35.71% 19.58% Allowance for loan losses to period 1.20% 1.17% 1.19% 1.51% 1.79% Earnings to loan loss coverage* 23.67 10.28 3.25 56.21 2.45 </TABLE> *Income before taxes plus provision for loan losses, divided by net charge-offs. 9
The following table shows the amount of the Allowance for Loan Losses allocated to each category at December 31 for the years 1993 through 1997. <TABLE> <CAPTION> TABLE IX ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES ___________________________________________________________________________________________________________________________________ As of December 31, 1997 1996 1995 1994 1993 Percent Percent Percent Percent Percent of loans of loans of loans of loans of loans in Each in Each in Each in Each in Each Category to Category to Category to Category to Category Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans ___________________________________________________________________________________________________________________________________ <S> <C> <C> <C> <C> <C> <C> <C> <C> Commercial and other $575 21.26% $835 15.85% $843 12.57% $1,246 12.98% $1,417 28.96% Real Estate Construction 14 1.73% 23 2.62% 18 2.18% 8 1.15% 20 1.52% Real Estate Mortgage 240 46.96% 322 52.49% 370 58.21% 417 60.84% 739 49.81% Consumer 412 30.04% 391 29.04% 247 27.04% 163 25.03% 135 19.71% Unallocated 1,430 0 759 0 773 0 813 0 381 0 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total $2,671 100.00% $2,330 100.00% $2,251 100.00% $2,647 100.00% $2,692 100.00% </TABLE> V. Deposits The following table shows the average balances and average rates paid on deposits for the years ended December 31, 1995, 1996, and 1997. <TABLE> <CAPTION> TABLE X DEPOSITS ____________________________________________________________________________________________________ For the year ended December 31, 1997 1996 1995 Average Average Average Average Average Average Dollars in thousands Balance Rate Balance Rate Balance Rate ____________________________________________________________________________________________________ <S> <C> <C> <C> <C> <C> Interest bearing transaction accounts $ 24,376 2.20% $ 50,041 2.42% $ 49,335 2.64% Money market deposit accounts 49,302 3.10% 21,212 3.72% 19,375 3.95% Savings accounts 25,822 2.74% 26,354 2.74% 26,595 2.74% Certificate of deposit, $100,000 or more 19,122 5.94% 17,026 5.52% 13,789 5.51% Other certificate of deposit 108,665 5.35% 103,029 5.48% 97,431 5.43% ----- ---- ----- ---- ----- ---- Total interest bearing deposits 227,287 4.28% 217,662 4.27% 206,525 4.28% Non-interest bearing demand deposits 49,432 46,198 40,843 ----- ----- ------ Total deposits $276,719 $263,860 $247,368 </TABLE> 10
The following table shows certificates of deposit in amounts of $100,000 or more as of December 31, 1997, 1996, and 1995 by time remaining until maturity. <TABLE> <CAPTION> TABLE XI CERTIFICATE OF DEPOSIT $100,000 & MORE _____________________________________________________________ Dollars in thousands 1997 1996 1995 Maturing in _____________________________________________________________ <S> <C> <C> <C> 3 months or less $ 5,549 $ 3,089 $ 3,392 3 through 6 months 3,087 3,550 3,779 6 through 12 months 5,843 3,774 5,436 over 12 months 9,467 7,013 2,629 ---- ---- ---- Total $23,946 $17,426 $15,236 </TABLE> VI. Return on Equity and Assets The return on average shareholders' equity and assets, the dividend pay out ratio, and the average equity to average assets ratio for the past three years are presented below. 1997 1996 1995 Return on average assets 1.23% 1.10% 0.80% Return on average equity 11.88% 10.99% 8.07% Dividend payout ratio 25.68% 25.88% 33.17% Average equity to average assets 10.36% 10.01% 9.97% VII. Short Term Borrowings The Bank periodically borrowed funds through federal funds from its correspondent banks, through the use of a demand note to the United States Treasury (Treasury Tax and Loan Deposits), and through securities sold under agreements to repurchase. The borrowings matured daily and were based on daily cash flow requirements. The borrowed amounts (in thousands) and their corresponding rates during 1997, 1996, and 1995 are presented in the following table. 11
<TABLE> <CAPTION> TABLE XII SHORT TERM BORROWINGS __________________________________________________________________________________ 1997 1996 1995 Dollars in thousands Balance Rate Balance Rate Balance Rate ___________________________________________________________________________________ Balance at December 31, <S> <C> <C> <C> <C> <C> <C> Federal funds purchased $ 0 $ 2,000 6.28% $ 1,400 5.63% Securities sold under agreement to repurchase 20,165 4.81% 15,135 4.58% 14,336 4.33% U. S. treasury demand notes and other borrowed money 4,025 5.27% 2,301 5.03% 560 5.51% ---- ---- ---- Total $24,190 $19,436 $16,296 Average daily balance outstanding: Federal funds purchased $ 271 5.54% $ 575 5.23% $ 96 6.03% Securities sold under agreement to repurchase 17,496 4.84% 14,413 4.76% 11,438 5.01% U. S. treasury demand notes and other borrowed money 1,857 5.33% 1,599 5.23% 1,996 5.46% ---- ---- ---- Total $19,624 5.00% $16,587 4.85% $13,530 5.09% The maximum amount outstanding at any month end: Federal funds purchased $ 0 $ 2,700 $ 1,400 Securities sold under agreement to repurchase $ 23,121 $16,046 $14,636 U. S. treasury demand notes and other borrowed money $ 4,033 $ 4,052 $ 4,066 </TABLE> 12
Item 2. Description of Property The Bank owns the Main Office, two office buildings, and seven branches. All of the above properties are owned directly and free of any encumbrances. The land at the Fort Monroe branch is leased by the Bank under an agreement expiring in October 2011. The remaining three branches are 4leased from unrelated parties under leases with renewal options which expire anywhere from 10-20 years. During 1996 the Company acquired land in the Oyster Point area of Newport News and is building a 15,000 square foot office building. When completed in mid 1998 the new facility will house the Bank's commercial and real estate lending offices and Trust and Financial Services. The Company has signed a contract to purchase a branch site in Norge VA. The Company expects to build a branch of approximately 2,500 square feet. For more information concerning the commitments under current leasing agreements, see Note 10. Lease Commitments of the Notes to Financial Statements found in Item 8. Financial Statements and Supplementary Data of this Report on Form 10K. Additional information on Other Real Estate Owned can be found in Note 6. Other Real Estate Owned of the Notes to Financial Statements found in Item 8. Financial Statements and Supplementary Data of this Report on Form 10K. Item 3. Legal Proceedings The Company is not a party to any material pending legal proceedings before any court, administrative agency, or other tribunal. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the quarter ended December 31, 1997. Part II Item 5. Market for Common Equity And Related Stockholder Matters The common stock of Old Point Financial Corporation has not been listed on an exchange and was not quoted by NASDAQ. The approximate number of shareholders of record as of December 31, 1997 was 1,510. The range of high and low prices and dividends per share of the Company's common stock for each quarter during 1997 and 1996 is presented in Part I. Item 7. of this Annual Report on Form 10-K. Additional information related to stockholder matters can be found in Note 15. Regulatory Matters of the Notes to Financial Statements found in Item 8. Financial Statements and Supplementary Data of this Report on Form 10K. Approval for quotation on the OTC Bulletin Board has been received by the National Association of Security Dealers, Inc. (NASD), and beginning in 1998 Old Point Financial Corporations' stock will be quoted under the symbol "OPOF". Item 6. Selected Financial Data The following table summarizes the Company's performance for the past five years. 13
<TABLE> <CAPTION> TABLE XIII SELECTED FINANCIAL HIGHLIGHTS ________________________________________________________________________________________ Years Ended December 31, 1997 1996 1995 1994 1993 (Dollars in thousands except per share data) ________________________________________________________________________________________ RESULTS OF OPERATIONS <S> <C> <C> <C> <C> <C> Interest income............... $25,242 $23,377 $21,534 $19,234 $19,105 Interest expense.............. 10,681 10,093 9,531 7,625 7,743 ----- ----- ----- ----- ----- Net interest income........... 14,561 13,284 12,003 11,609 11,362 Provision for loan loss....... 600 600 825 25 250 ----- ----- ----- ----- ----- Net interest income after provision for loan loss...... 13,961 12,684 11,178 11,584 11,112 Gains (losses) on sales of investment securities........ (1) 2 9 407 19 Noninterest income............ 4,275 4,134 3,836 3,755 4,003 Noninterest expenses.......... 12,704 12,066 11,884 11,837 12,252 ----- ----- ----- ----- ----- Income before taxes........... 5,531 4,754 3,139 3,909 2,882 Income taxes ................. 1,441 1,309 797 1,136 667 ----- ----- ----- ----- ----- Net income.................... $4,090 $3,445 $2,342 $2,773 $2,215 ===== ===== ===== ===== ===== FINANCIAL CONDITION Total assets.................. $348,671 $316,345 $304,266 $277,680 $273,884 Total deposits................ 287,100 263,519 256,535 235,599 234,171 Total loans................... 221,744 198,584 189,355 174,881 150,776 Stockholders' equity.......... 36,332 32,400 30,328 26,222 25,836 Average assets................ 332,155 313,012 291,174 278,398 270,685 Average equity................ 34,418 31,333 29,022 26,694 24,897 PERTINENT RATIOS Return on average assets...... 1.23% 1.10% 0.80% 1.00% 0.82% Return on average equity...... 11.88% 10.99% 8.07% 10.39% 8.90% Dividends paid as a percent of net income................... 25.68% 25.88% 33.17% 25.03% 28.17% Average equity as a percent of average assets............... 10.36% 10.01% 9.97% 9.59% 9.20% PER SHARE DATA Basic EPS..................... $1.60 $1.35 $0.92 $1.10 $0.89 Cash dividends declared....... 0.41 0.35 0.305 0.275 0.25 Book value.................... 14.16 12.72 11.91 10.37 10.30 GROWTH RATES Year end assets............... 10.22% 3.97% 9.57% 3.33% 1.92% Year end deposits............. 8.95% 2.72% 8.89% 1.77% 1.15% Year end loans................ 11.66% 4.87% 8.28% 8.08% -6.82% Year end equity............... 12.14% 6.83% 15.66% 8.39% 6.79% Average assets................ 6.12% 7.50% 4.59% 3.53% 0.66% Average equity................ 9.85% 7.96% 8.72% 11.90% 4.36% Net income.................... 18.72% 47.10% -15.54% 59.55% 27.45% Cash dividends declared....... 17.14% 14.75% 10.91% 37.50% 25.00% Book value.................... 11.30% 6.83% 14.78% 6.54% 5.78% </TABLE> 14
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion is intended to assist readers in understanding and evaluating the consolidated results of operations and financial condition of the Company. This discussion should be read in conjunction with the financial statements and other financial information contained elsewhere in this report. The analysis attempts to identify trends and material changes which occurred during the period presented. EARNINGS SUMMARY Net income was $4.09 million, or $1.60 per share in 1997 compared to $3.45 million, or $1.35 per share in 1996 and $2.34 million, or $0.92 per share in 1995. Return on average assets was 1.23% in 1997, 1.10% in 1996 and 0.80% in 1995. Return on average equity was 11.88% in 1997, 10.99% in 1996 and 8.07% in 1995. For the past five years return on average assets has averaged 0.99% and return on average equity has averaged 10.05%. Selected Financial Highlights summarizes the Company's performance for the past five years. 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 tax equivalent basis, was $15.30 million in 1997, up $1.48 million, or 11% from $13.82 million in 1996 which was up $1.42 million, or 11% from $12.40 million in 1995. Net interest income is affected by variations in interest rates and the volume and mix of earning assets and interest-bearing liabilities. The net interest yield increased to 4.91% in 1997 from 4.75% in 1996 which was up from 4.56% in 1995. Tax equivalent interest income increased $2.07 million, or 9%, in 1997. Average earning assets grew $21.26 million, or 7%. Total average loans increased $17.99 million, or 9%, while average investment securities increased $2.27 million, or 2%. Interest income increased in 1997 by eleven basis points primarily due to the collection of interest on nonaccrual loans. Interest expense increased $588 thousand, or 6%, in 1997. Interest bearing liabilities also increased 6% in 1997. The cost of funding liabilities increased two basis points due to the higher cost of federal funds purchased and securities sold under agreements to repurchase and payments on interest bearing deposit accounts. PROVISION/ALLOWANCE FOR LOAN LOSSES 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 loan portfolio. There was no change in the provision, remaining at $600 thousand in 1997 and 1996 which was down from $825 thousand in 1995. Loans charged off during 1997 totalled $868 thousand compared to $925 thousand in 1996 and $1.72 million in 1995, while recoveries amounted to $609 thousand in 1997, $404 thousand in 1996 and $499 thousand in 1995. During 1996 a large portion of the charge offs were in the installment loans to individuals portfolio which is comprised of loans to individuals for personal expenditures such as household furniture and appliances and automobiles. The portfolio includes indirect dealer loans which accounted for $35 million of $58 million in 1996 and $34 million of $67 million in 1997. During 1996 the Company experienced a significant increase in personal bankruptcies leading to higher charge offs of indirect dealer loans. Since the beginning of 1996 the underwriting standards for dealer loans has been raised thus reducing indirect dealer loans charged off by $186 thousand or 44% in 1997 from 1996. The Company's net loans charged off to year-end loans were 0.12% in 1997, 0.26% in 1996, and 0.64% in 1995. The allowance for loan losses, as a percentage of year-end loans, was 1.20% in 1997, 1.17% in 1996, and 1.19% in 1995. 15
As of December 31, 1997, nonperforming assets were $1.43 million, down from $1.90 million at year-end 1996 which was down from $3.40 million at year-end 1995. Nonperforming assets consist of loans in nonaccrual status and other real estate. The 1997 total consisted of other real estate of $774 thousand and $660 thousand in nonaccrual loans. The other real estate consisted of $354 thousand in a commercial property originally acquired as a potential branch site and now held for sale and $420 thousand in foreclosed real estate. Nonaccrual loans consisted of $47 thousand in commercial loans and $613 thousand in mortgage loans. The Company has aggressively dealt with these credits and specific action plans have been developed for each of these classified loans to address any deficiencies. Loans still accruing interest but past due 90 days or more decreased to $455 thousand as of December 31, 1997 compared to $1.34 million as of December 31, 1996, but increased from $248 thousand as of December 31, 1995. The allowance for loan losses is analyzed for adequacy on a quarterly basis to determine the required amount of provision for loan losses. A loan-by-loan review is conducted on all significant classified commercial and mortgage loans. Inherent losses on these individual loans are determined and an allocation of the allowance is provided. Smaller nonclassified commercial and mortgage loans and all consumer loans are grouped by homogeneous pools with an allocation assigned to each pool based on an analysis of historical loss and delinquency experience, trends, economic conditions, underwriting standards, and other factors. OTHER INCOME Other income increased $138 thousand, or 3% in 1997 from 1996 compared to an increase of $291 thousand, or 8% in 1996 from 1995. The 1997 increase was due to higher Trust Services fees and other service charge income. The 1996 increase was due primarily to Trust Services fees and mortgage brokerage income. OTHER EXPENSES Other expenses increased $638 thousand or 5% in 1997 over 1996 after increasing 2% in 1996 from 1995. Salaries and employee benefits increased $264 or 4% in 1997 due to normal salary increases and higher medical insurance costs. Occupancy expense increased $78 thousand, or 10% in 1997 primarily due to higher maintenance costs associated with repairs and remodeling of bank buildings. Equipment expense increased $65 thousand or 6% due to higher depreciation expense on new computer systems and related service contracts. Other operating expenses increased $231 thousand or 8%. Legal fees, postage and freight, advertising, and marketing were the major factors for the increase in other operating expenses. The increase in legal fees is due higher litigation fees. The increase in advertising and marketing is related to generating loan and deposit growth. The increase in postage and freight is due to higher postage rates and increased mailings. ASSETS At December 31, 1997, the Company had total assets of $348.7 million, up 10% from $316.3 million at December 31, 1996. Average assets in 1997 were $332.2 million compared to $313.0 million in 1996. The growth in assets in 1997 was due to the increase in average loans, which were up 9%. During 1996 the Company acquired land in the Oyster Point area of Newport News to build a 15,000 square foot office building. When completed in mid 1998 the new facility will house the Bank's commercial and real estate lending offices and Trust and Financial Services. The Company has signed a contract to purchase a branch site in Norge, VA. The Company plans to build a new branch of approximately 2,500 square feet. The branch will provide full service banking including consumer and business services. 16
LOANS The Company experienced excellent loan demand in 1997. Total loans as of December 31, 1997 were $221.7 million, up 12% from $198.6 million at December 31, 1996. All categories of loans increased during 1997 except tax exempt loans and real estate mortgages. Footnote 3 of the financial statements details the loan volume by category for the past two years. INVESTMENT SECURITIES At December 31, 1997 total investment securities were $96.5 million, up 1% from $95.1 million on December 31, 1996. The goal of the Company is to provide maximum return on the investment portfolio within the framework of its asset/liability objectives. These objectives include managing interest sensitivity, liquidity and pledging requirements. Footnote 2 of the financial statements details the composition of the investment portfolio for the past two years. DEPOSITS At December 31, 1997, total deposits amounted to $287.1 million, up 9% from $263.5 million on December 31, 1996. Non-interest bearing deposits increased $4.8 million, or 10%, in 1997 over 1996. Savings deposits increased $3.8 million, or 4%, in 1997 over 1996. Certificates of deposit increased $15.0 million or 12% in 1997 over 1996. STOCKHOLDERS' EQUITY Total stockholders' equity as of December 31, 1997 was $36.3 million, up 12% from $32.4 million on December 31, 1996. The Company is required to maintain minimum amounts of capital under banking regulations. Under the regulations, Total Capital is composed of core capital (Tier 1) and supplemental capital (Tier 2). Tier 1 capital consists of common stockholders' equity less goodwill. Tier 2 capital consists of certain qualifying debt and a qualifying portion of the allowance for loan losses. The following is a summary of the Company's capital ratios for 1997, 1996 and 1995. 1997 1997 1996 1995 Regulatory Requirements Tier 1 4.00% 15.06% 15.63% 15.47% Total Capital 8.00% 16.19% 16.76% 16.47% Tier 1 Leverage 3.00% 10.32% 10.21% 9.80% Year-end book value was $14.16 in 1997 and $12.72 in 1996. Cash dividends were $1.0 million, or $.41 per share in 1997 and $891 thousand, or $.35 per share in 1996. The common stock of the Company has not been extensively traded. The stock has not been listed on an exchange and was not quoted by NASDAQ. Bid and ask prices have not been available for the Company. The volume of trading of the stock has therefore been limited. The prices below are based upon a limited number of transactions known to Management during the past two years. The stock has been approved by the National Association of Security Dealers, Inc. (NASD) for quotation on the OTC Bulletin Board. Beginning in 1998, Old Point Financial Corporation's stock will be quoted under the symbol "OPOF". There were 1,510 stockholders of the Company as of December 31, 1997. This stockholder count does not include stockholders who hold their stock in a nominee registration. The following is a summary of the dividends paid and market price on Old Point Financial Corporation common stock for 1997 and 1996. 17
1997 1996 Market Value Market Value Dividend High Low Dividend High Low 1st Quarter $ 0.10 $20.75 $20.75 $ 0.08 $18.75 $18.75 2nd Quarter $ 0.10 $21.00 $20.75 $ 0.08 $18.75 $18.75 3rd Quarter $ 0.10 $21.25 $20.75 $ 0.09 $18.75 $18.75 4th Quarter $ 0.11 $25.00 $21.00 $ 0.10 $20.75 $18.75 LIQUIDITY Liquidity is the ability of the Company to meet present and future obligations through the acquisition of additional liabilities or sale of existing assets. Management considers the liquidity of the Company to be adequate. Sufficient assets are maintained on a short-term basis to meet the liquidity demands anticipated by Management. In addition, secondary sources are available through the use of borrowed funds if the need should arise. 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. 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 by the end of 1998. 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 cataloged all of its hardware and software. Software and hardware that is not Year 2000 compliant is being 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. Operating and capital budgets incorporate projected expenditures necessary to ensure that all systems are Year 2000 compliant. At this time management does not believe that related expenditures will have an adverse material effect on the Company. Item 8. Financial Statements and Supplementary Data The consolidated financial statements and related footnotes of the company are presented below followed by the financial statements of the parent. 18
Independent Auditors' Report To the Board of Directors Old Point Financial Corporation Hampton, Virginia We have audited the accompanying consolidated balance sheets of Old Point Financial Corporation and subsidiary as of December 31, 1997 and 1996, and the related consolidated statements of income, cash flows and changes in stockholders' equity for each of the years in the three-year period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects, the consolidated financial position of Old Point Financial Corporation and subsidiary as of December 31, 1997 and 1996, and the consolidated results of their operations and cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. Eggleston Smith P.C. January 16, 1998 Newport News, Virginia 19
<TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS ________________________________________________________________________________________ December 31, 1997 1996 (Dollars in Thousands) ________________________________________________________________________________________ ASSETS <S> <C> <C> Cash and due from banks $ 12,208 $ 10,988 Investments: Securities available-for-sale, at market 67,546 70,089 Securities to be held-to-maturity (Market value $29,096 in 1997 and $24,820 in 1996) 28,980 24,967 Federal funds sold 6,977 561 Loans, total 221,744 198,584 Less - allowance for loan losses 2,671 2,330 ------------ ------------ Net loans 219,073 196,254 Premises and equipment 9,742 9,403 Other real estate owned 774 354 Other assets 3,371 3,729 ------------ ------------ Total assets $348,671 $316,345 ============ ============ LIABILITIES Non interest-bearing deposits $52,360 $47,534 Savings deposits 99,991 96,196 Certificates of deposit 134,749 119,789 ------------ ------------ Total deposits 287,100 263,519 Federal funds purchased and securities sold under repurchase agreements 20,165 17,135 Interest bearing demand notes issued to the United States Treasury and other liabilities for borrowed money 4,025 2,301 Other liabilities 1,049 990 ------------ ------------ Total Liabilities 312,339 283,945 STOCKHOLDERS' EQUITY Common stock, $5 par value, 6,000,000 shares authorized Issued 2,566,172 in 1997 and 1,273,546 in 1996 12,831 6,368 Capital surplus 9,693 9,345 Retained earnings 13,098 16,639 Unrealized gain on securities 710 48 ------------ ------------ Total stockholders' equity 36,332 32,400 ------------ ------------ Total liabilities and stockholders' equity $348,671 $316,345 ============ ============ See Notes to Consolidated Financial Statements </TABLE> 20
<TABLE> <CAPTION> ___________________________________________________________________________________________________ CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 1997 1996 1995 (Dollars in Thousands except per share amounts) ___________________________________________________________________________________________________ <S> <C> <C> <C> INTEREST INCOME Interest and fees on loans $19,203 $17,580 $16,079 Interest on investment securities Taxable 4,473 4,736 4,690 Exempt from income tax 1,290 853 501 ----------- ----------- ----------- 5,763 5,589 5,191 Interest on trading account securities --- --- --- Interest on federal funds sold 276 208 264 ----------- ----------- ----------- Total interest income 25,242 23,377 21,534 INTEREST EXPENSE Interest on savings deposits 2,773 2,721 2,797 Interest on certificates of deposit 6,948 6,582 6,051 Interest on federal funds purchased and securities sold under repurchase agreements 861 706 573 Interest on demand notes issued to the United States Treasury and other liabilities for borrowed money 99 84 110 ----------- ----------- ----------- Total interest expense 10,681 10,093 9,531 ----------- ----------- ----------- Net interest income 14,561 13,284 12,003 Provision for loan losses 600 600 825 ----------- ----------- ----------- Net interest income after provision for loan losses 13,961 12,684 11,178 OTHER INCOME Income from fiduciary activities 1,750 1,667 1,441 Service charges on deposit accounts 1,723 1,887 1,893 Other service charges, commissions and fees 573 360 280 Security gains (losses), net (1) 2 9 Income from trading account --- --- --- Other operating income 229 220 222 ----------- ----------- ----------- Total other income 4,274 4,136 3,845 OTHER EXPENSE Salaries and employee benefits 7,670 7,406 7,178 Occupancy expense 846 768 714 Equipment expense 1,094 1,029 959 Other operating expense 3,094 2,863 3,033 ----------- ----------- ----------- Total other expenses 12,704 12,066 11,884 ----------- ----------- ----------- Income before income taxes 5,531 4,754 3,139 Income taxes 1,441 1,309 797 ----------- ----------- ----------- Net income $4,090 $3,445 $2,342 =========== =========== =========== Basic Earnings per Share Average shares outstanding (in thousands) 2,561 2,547 2,544 Net income per share of common stock $1.60 $1.35 $0.92 Diluted Earnings per Share Average shares outstanding (in thousands) 2,575 2,563 2,553 Net income per share of common stock $1.59 $1.34 $0.92 See Notes to Consolidated Financial Statements </TABLE> 21
<TABLE> <CAPTION> ________________________________________________________________________________________________________________________ Consolidated Statements of Cash Flows Years Ended December 31, 1997 1996 1995 ________________________________________________________________________________________________________________________ CASH FLOWS FROM OPERATING ACTIVITIES <S> <C> <C> <C> Net income.................................................... $ 4,090 $ 3,445 $ 2,342 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................... 941 883 768 Provision for loan losses................................... 600 600 825 Gains on sale of investment securities, net................. 1 (2) (9) Net amortization & accretion of securities.................. 368 679 1,078 Net (increase) decrease in trading account.................. 0 0 0 Loss on sale of equipment................................... 0 110 0 Increase in other real estate owned......................... (613) 152 (553) (Increase) decrease in other assets (net of tax effect of FASB 115 adjustment)................ 16 357 (8) Increase (decrease) in other liabilities.................... 59 (117) 104 -------------- -------------- -------------- Net cash provided by operating activities................. 5,462 6,107 4,547 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investment securities ......................... (31,001) (30,015) (31,772) Proceeds from maturities & calls of securities ............. 23,949 24,171 25,315 Proceeds from sales of available - for - sale securities ... 6,218 2,003 0 Proceeds from sales of held - to - maturity securities 0 0 0 Loans made to customers..................................... (123,513) (105,807) (104,681) Principal payments received on loans........................ 100,094 96,057 88,985 Purchases of premises and equipment......................... (1,304) (2,113) (1,991) Proceeds from sales of premises and equipment............... 23 20 0 Proceeds from sales of other real estate owned.............. 193 448 167 (Increase) decrease in federal funds sold................... (6,416) (48) (266) -------------- -------------- -------------- Net cash provided by (used in) investing activities....... (31,757) (15,284) (24,243) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in non-interest bearing deposits........ 4,826 4,632 5,816 Increase (decrease) in savings deposits..................... 3,794 391 (1,181) Proceeds from the sale of certificates of deposit........... 59,771 43,478 66,693 Payments for maturing certificates of deposit............... (44,810) (41,517) (50,392) Increase (decrease) in federal funds purchased & repurchase agreements...................................... 3,030 1,399 2,042 Increase (decrease) in interest bearing demand notes and other borrowed money...................... 1,724 1,741 (602) Proceeds from issuance of common stock...................... 230 0 88 Dividends paid.............................................. (1,050) (891) (777) -------------- -------------- -------------- Net cash provided by financing activities................. 27,515 9,233 21,687 Net increase (decrease) in cash and due from banks........ 1,220 56 1,991 Cash and due from banks at beginning of period............ 10,988 10,932 8,941 -------------- -------------- -------------- Cash and due from banks at end of period.................. $12,208 $10,988 $10,932 ============== ============== ============== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash payments for: Interest.................................................. $10,587 $10,126 $9,286 Income taxes.............................................. 1,475 1,275 830 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING TRANSACTIONS Unrealized gain (loss) on investment securities, net of tax.................................... $662 ($482) $2,453 Transfer of property from premises and equipment to other real estate owned....................... $0 $0 $354 See Notes to Consolidated Financial Statements. 22 </TABLE>
<TABLE> <CAPTION> CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY ___________________________________________________________________________________________________________________________ Unrealized Common Gains(Loss) on Total Stock Capital Retained Investment Stockholders' (Par Value) Surplus Earnings Securities Equity (Dollars in Thousands) ___________________________________________________________________________________________________________________________ YEAR ENDED DECEMBER 31, 1995 <S> <C> <C> <C> <C> <C> Balance, beginning of year $ 6,320 $ 9,032 $12,793 ($1,923) $26,222 Net income --- --- 2,342 --- 2,342 Sale of stock 48 313 (273) --- 88 Increase in unrealized gain on investment securities --- --- --- 2,453 2,453 Cash dividends paid --- --- (777) --- (777) ------------- ------------- ------------- ------------- ------------- Balance, end of year $ 6,368 $ 9,345 $14,085 $ 530 $30,328 ============= ============= ============= ============= ============= YEAR ENDED DECEMBER 31, 1996 Balance, beginning of year $ 6,368 $ 9,345 $14,085 $ 530 $30,328 Net income --- --- 3,445 --- 3,445 Sale of stock --- --- --- --- --- Decrease in unrealized gain on investment securities --- --- --- (482) (482) Cash dividends paid --- --- (891) --- (891) ------------- ------------- ------------- ------------- ------------- Balance, end of year $ 6,368 $ 9,345 $16,639 $ 48 $32,400 ============= ============= ============= ============= ============= YEAR ENDED DECEMBER 31, 1997 Balance, beginning of year $ 6,368 $ 9,345 $16,639 $ 48 $32,400 Net income --- --- 4,090 --- 4,090 Sale of stock 48 348 (166) --- 230 Stock dividend declared on common stock 6,415 --- (6,415) --- --- Increase in unrealized gain on investment securities --- --- --- 662 662 Cash dividends paid --- --- (1,050) --- (1,050) ------------- ------------- ------------- ------------- ------------- Balance, end of year $12,831 $ 9,693 $13,098 $ 710 $36,332 ============= ============= ============= ============= ============= </TABLE> See Notes to Consolidated Financial Statements 23
NOTE 2, Investment Securities At December 31, 1997, the investment securities portfolio is composed of securities classified as held-to-maturity and available-for-sale, in conjunction with SFAS 115. Investment securities held-to-maturity are carried at cost, adjusted for amortization of premiums and accretions of discounts, and investment securities available-for-sale are carried at market value. The amortized cost and fair value of investment securities held-to-maturity at December 31, 1997 and 1996, were: Amortized Unrealized Unrealized Market Cost Gains Losses Value (Dollars in Thousands) _______________________________________________________________________________ Obligations of other United States Government Agencies as of December 31, 1997 $28,980 $128 ($12) $29,096 ======== ==== ===== ======= Obligations of other United States Government Agencies as of December 31, 1996 $24,967 $ 23 ($170) $24,820 ======== ==== ====== ======= The amortized cost and fair values of investment securities available-for-sale at December 31, 1997 were: <TABLE> <CAPTION> Amortized Unrealized Unrealized Market Cost Gains Losses Value (Dollars in Thousands) __________________________________________________________________________________________________________ <S> <C> <C> <C> <C> United States Treasury securities $22,189 $93 ($63) $22,219 Obligations of other United States Government agencies 10,957 121 (28) 11,050 Obligations of state and political subdivisions 27,844 1,052 --- 28,896 Adjustable Rate Mortgage Fund 4,400 (99) 4,301 Federal Home Loan Bank Stock 945 --- --- 945 Federal Reserve Bank stock 85 --- --- 85 Other marketable equity securities 50 --- --- 50 ----------- ----------- ----------- ----------- Total $66,470 $1,266 ($190) $67,546 =========== =========== =========== =========== </TABLE> The amortized cost and fair values of investment securities available-for-sale at December 31, 1996 were: <TABLE> <CAPTION> Amortized Unrealized Unrealized Market Cost Gains Losses Value (Dollars in Thousands) __________________________________________________________________________________________________________ <S> <C> <C> <C> <C> United States Treasury Securities $36,562 $253 ($240) $36,575 Obligations of other United States Government agencies 7,998 16 (134) 7,880 Obligations of State and Political subdivisions 20,012 320 (38) 20,294 Adjustable Rate Mortgage Fund 4,400 (103) 4,297 Federal Home Loan Bank Stock 908 --- --- 908 Federal Reserve Bank stock 85 --- --- 85 Other marketable equity Securities 50 --- --- 50 ----------- ----------- ----------- ----------- Total $70,015 $589 ($515) $70,089 =========== =========== =========== =========== </TABLE> 24
NOTE 2, Investment Securities (Continued) Investment securities carried at $36.4 million and $32.2 million at December 31, 1997 and 1996, respectively, were pledged to secure public deposits and securities sold under agreements to repurchase and for other purposes required or permitted by law. The amortized cost and approximate market values of investment securities at December 31, 1997 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may the right to call or prepay obligations with or without call or prepayment penalties. <TABLE> <CAPTION> December 31, 1997 Available-For-Sale Held-To-Maturity Amortized Market Amortized Market Cost Value Cost Value (Dollars in Thousands) <S> <C> <C> <C> <C> Due in one year or less $14,615 $14,653 $ 0 $ 0 Due after one year through five years 15,999 16,028 27,980 28,082 Due after five years through ten years 15,528 16,108 1,000 1,014 Due after ten years 14,848 15,376 --- --- ------- ------- ------- ------- Total debt securities 60,990 62,165 28,980 29,096 Other securities without stated maturities 5,480 5,381 --- --- ------- ------- ------- ------- Total investment securities $66,470 $67,546 $28,980 $29,096 ======= ======= ======= ======= </TABLE> The proceeds from the sale and maturities of investment securities, and the related realized gains and losses are shown below: 1997 1996 1995 Proceeds from sales and maturities of investments $30,167 $26,174 $25,315 ======= ======= ======= Realized gains $ 3 $ 2 $ 9 Realized losses 4 --- --- ------- ------- ------- Net gains (losses) ($1) $ 2 $ 9 ======= ======== ======= 25
NOTE 3, Loans At December 31, loans before allowance for loan losses consisted of: 1997 1996 (Dollars in Thousands) Commercial and other $45,059 $28,944 Real estate - construction 3,836 5,213 Real estate - mortgage 104,141 104,230 Installment loans to individuals 66,615 57,733 Tax exempt loans 2,093 2,464 ------------ ------------ Total $221,744 $198,584 ============ ============ Information concerning loans which are contractually past due or in non-accrual status is as follows: 1997 1996 (Dollars in Thousands) Contractually past due loans past due 90 days or more and still accruing interest $455 $1,342 ============ ============ Loans which are in non-accrual status $660 $1,550 ============ ============ The Bank has had, and may be expected to have in the future, banking transactions in the ordinary course of business with directors, executive officers, their immediate families, and companies in which they are principal owners (commonly referred to as related parties), on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others. The aggregate direct and indirect loans of these persons totaled $1.9 million and $2.0 million at December 31, 1997 and respectively. These totals do not include loans made in the ordinary course of business to other companies where a director or executive officer of the Bank was also a director or officer of such company but not a principal owner. None of the directors or executive officers had direct or indirect loans exceeding 10% of stockholders' equity at December 31, 1997. The bank does not account for any of its loans under the provisions of Statement of Financial Accounting Standards No. 114 or 118 related to impaired loans. NOTE 4, Allowance for Loan Losses Changes in the allowance for loan losses are as follows: 1997 1996 1995 (Dollars in Thousands) Balance, beginning of year $2,330 $2,251 $2,647 Recoveries 609 404 499 Provision for loan losses 600 600 825 Loans charged off (868) (925) (1,720) -------- ------- -------- Balance, end of year $2,671 $2,330 $2,251 ====== ====== ====== 26
NOTE 5, Premises and Equipment At December 31, premises and equipment consisted of: 1997 1996 Land $2,133 2,133 Buildings 7,806 7,110 Leasehold improvements 855 855 Furniture, fixtures and equipment 9,051 8,475 ----------- ----------- Total cost 19,845 18,573 Less accumulated depreciation and amortization 10,103 9,170 ----------- ----------- Net book value $9,742 $9,403 =========== =========== NOTE 6, Other Real Estate Owned Other real estate consisted of the following at December 31: 1997 1996 Foreclosed real estate $420 $0 Property held for sale 354 354 ----------- ----------- Total $774 $354 =========== =========== NOTE 7, Indebtedness The Bank's short-term borrowings include federal funds purchased, securities sold under repurchase agreements (including $4.0 million to directors in 1997 and $2.5 million in 1996) and United States Treasury Demand Notes. The federal funds purchased and securities sold under repurchase agreements are held under various maturities and interest rates. The United States Treasury Demand Notes are subject to call by the United States Treasury with interest paid monthly at the rate of 25 basis points (1/4%) below the federal funds rate. NOTE 8, Stock Option Plan The Company has stock option plans which reserves 84,534 shares of common stock for grants to key employees. The exercise price of each option equals the market price of the Company's common stock on the date of the grant and an option's maximum term is ten years. A summary of the exercisable incentive stock options is presented below: <TABLE> <CAPTION> Outstanding Granted Exercised Expired Outstanding Beginning During During During At End of Year the Year the Year the Year of Year <S> <C> <C> <C> <C> <C> 1995 Shares 91,010 5,404 (30,440) (1,500) 64,474 Weighted average exercisable price $14.10 $18.50 $9.77 $18.13 $16.41 1996 Shares 64,474 28,772 (500) (400) 92,346 Weighted average exercisable price $16.41 $18.75 $18.13 $18.13 $17.13 1997 Shares 92,346 25,754 (22,280) (11,286) 84,534 Weighted average exercisable price $17.13 $20.75 $13.12 $18.60 $19.09 At December 31, 1997, exercise prices on outstanding options ranged from $18.13 to $20.75 per share and the weighted average remaining contractual life was 8 years. 27
NOTE 8, Stock Option Plan (Continued) The Company accounts for its stock option plans in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, which does not allocate costs to stock options granted at current market values. The Company could, as an alternative, allocate costs to stock options using option pricing models, as provided in Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation. Because of the limited number of options granted and the limited amount of trading activity in the Company's stock, management believes that stock options are best accounted for in accordance with APB Opinion No. 25. However, had the stock options been accounted for in accordance with SFAS No. 123, pro-forma amounts for net earnings and earnings per share would have been as follows for each of the years ending December 31: 1997 1996 1995 Pro-forma net income (in thousands) $4,041 $3,401 $2,313 ======= ====== ======= Pro-forma earnings per share $1.57 $1.33 $0.91 ===== ===== ===== Pro-forma amounts were computed using a 6% risk free interest rate over a 10 year term using an annual dividend rate of between 1.74% and 1.92% and a .01% volatility rate. The pro-forma effect of the potential exercise of stock options on basic earnings per share would be to increase the number of weighted average number of outstanding shares by approximately 14,000 in 1997, 16,000 in 1996, and 9,000 in 1995. The Company also has an Employee Stock Purchase Plan which reserves 70,968 shares of common stock for eligible employees. The purchase price is 95% of the lesser of (1) the common stock's fair market value at July 1 or (2) the common stock's fair market value at the following June 30. During 1997, 4,032 shares of common stock were purchased by employees. NOTE 9, Income Taxes The components of income tax expense are as follows: 1997 1996 1995 (Dollars in Thousands) Currently payable $1,458 $1,214 $572 Deferred (17) 95 225 ------- ------- ----- Reported tax expense $1,441 $1,309 $797 ====== ====== ==== The items that caused timing differences affecting deferred income taxes are as follows: 1997 1996 1995 (Dollars in Thousands) Provision for loan losses ($186) ($8) $222 Other writedowns and adjustments --- --- --- Pension plan expenses 17 32 15 Deferred loan fees, net 24 21 27 Security gains and losses (4) (7) 3 Interest on certain non-accrual loans 95 8 (77) Alternative minimum taxes --- --- --- Depreciation 37 46 33 Other --- 3 2 ----- ---- ---- ($17) $95 $225 ====== ===== ===== A reconciliation of the "expected" Federal income tax expense on income before income taxes with the reported income tax expense follows: 1997 1996 1995 (Dollars in Thousands) Expected tax expense (34%) $1,880 $1,616 $1,067 Interest expense on tax exempt assets 57 38 25 Tax exempt interest (494) (352) (263) Alternative minimum tax --- --- --- Disqualified incentive stock options (2) --- (47) Other, net --- 7 15 ------ ------ ------- Reported tax expense $1,441 $1,309 $ 797 ====== ====== ====== 28
NOTE 9, Income Taxes (Continued) The components of the net deferred tax asset included in other assets are as follows at December 31: 1997 1996 (Dollars in Thousands) Components of Deferred Tax Liability: Depreciation ($147) ($110) Accretion of discounts on securities (9) (15) Net unrealized (gain) on available-for-sale securities (366) (25) Deferred loan fees and costs (91) (67) Other 0 (2) ------ ------ Deferred tax liability (613) (219) Components of Deferred Tax Asset: Allowance for loan losses 552 366 Net unrealized loss on available-for-sale securities --- --- Interest on non-accrual loans 216 311 Deferred compensation 8 12 Pension 8 25 ------ ------ Deferred tax asset, net $171 $495 ====== ====== NOTE 10, Lease Commitments The Bank has noncancellable leases on premises and equipment expiring at various dates, including extensions to the year 2011. Certain leases provide for increased annual payments based on increases in real estate taxes and the Consumer Price Index. The total approximate minimum rental commitment at December 31, 1997, under noncancellable leases is $807 thousand which is due as follows: Year (Dollars in Thousands) 1998 $165 1999 97 2000 48 2001 48 2002 48 Remaining term of leases 401 ---- Total $807 ==== The aggregate rental expense of premises and equipment was $208 thousand, $191 thousand and $165 thousand for 1997, 1996, and 1995 respectively. 29
NOTE 11, Pension Plan The following table sets forth the Pension Plan's funded status and amounts recognized in the Bank's financial statements at December 31: 1997 1996 (Dollars in Thousands) Actuarial present value of benefits obligations: Vested benefits ($1,720) ($1,723) ======== ======== Accumulated benefit obligation ($1,828) ($1,840) ======== ======== Projected benefit obligation ($2,582) ($2,576) Plan assets at fair value 2,367 2,176 -------- -------- Projected benefit obligation in excess of plan assets (215) (400) Unrecognized net plan asset (50) (62) Net deferrals 243 390 -------- -------- Pension plan liability included in consolidated balance sheets ($22) ($72) ======== ======== Net pension cost includes the following components: Service cost - benefits earned in the current period $141 $146 Interest cost on projected benefit obligation 179 168 Return on plan assets (158) (131) Recognition of unrecognized net plan assets (12) (12) Amortization of net deferrals 6 17 ----- ----- Net pension cost $156 $188 ===== ===== Contributions to the plan $206 $282 ===== ====== The actuarial present value of benefits and obligations were determined by use of the following assumptions: 1997 1996 Discount rate 8.0% 7.5% Compensation increase 5.0% 5.0% Expected long term rate of return on assets 8.0% 7.5% NOTE 12, Profit Sharing The Bank has a defined contribution profit sharing and thrift plan covering substantially all of its employees. The Bank may make profit sharing contributions to the plan as determined by the board of directors. In addition, the Bank matches thrift contributions by employees fifty cents for each dollar contributed. Expenses related to the plan totaled $258 thousand and $261 thousand in 1997 and 1996, respectively. 30
NOTE 13, Commitments and Contingencies In the normal course of business, the Bank makes various commitments and incurs certain contingent liabilities. These commitments and contingencies represent off-balance sheet risk for the Bank. To meet the financing needs of its customers, the Bank makes lending commitments under commercial lines of credit, home equity loans and construction and development loans. The Bank also incurs contingent liabilities related to irrevocable letters of credit. Off- balance sheet items at December 31, are as follows: 1997 1996 (Dollars in Thousands) Commitments to extend credit: Home equity lines of credit $ 9,748 $ 9,442 Construction and development loans committed but not funded 7,124 5,228 Other lines of credit (principally commercial) 19,556 19,201 ------- ------- $36,428 $33,871 ======= ======= Irrevocable letters of credit $ 822 $ 1,071 ====== ======= Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank, upon extensions of credit is based on management's credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Standby letters of credit and financial guarantees written are conditional commitments issued by the bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing agreements. Most guarantees extend for less than two years and expire in decreasing amounts through 1998. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Bank holds various collateral supporting those commitments for which collateral is deemed necessary. 31
NOTE 14, Fair Value of Financial Instruments The estimated fair value of the Bank's financial instruments at December 31, are as follows: </TABLE> <TABLE> <CAPTION> 1997 1996 Carrying Fair Carrying Fair Amount Value Amount Value (Dollars in Thousands) (Dollars in Thousands) <S> <C> <C> <C> <C> Cash and due from banks $12,208 $12,208 $10,988 $10,988 Investment securities, held-to-maturity 28,980 29,096 24,967 24,820 Investment securities, available-for-sale 67,546 67,546 70,089 70,089 Federal funds sold 6,977 6,977 561 561 Loans, net of allowances for loan losses 219,073 217,913 196,254 195,793 Deposits: Non-interest bearing deposits 52,360 52,360 47,534 47,534 Savings deposits 99,991 99,991 96,196 96,196 Certificates of Deposit 134,749 134,330 119,789 120,018 Securities sold under repurchase agreement and federal funds purchased 20,165 20,165 17,135 17,135 Interest bearing U.S. Treasury demand notes and other liabilities for borrowed money 4,025 4,025 2,301 2,301 Commitments to extend credit 36,428 36,428 33,871 33,871 Irrevocable letters of credit 822 822 1,071 1,071 </TABLE> The above presentation of fair values is required by the Statement of Financial Accounting Standards No. 107 "Disclosures about Market Values of Financial Instruments". The fair values shown do not necessarily represent the amounts which would be received on sale or other disposition of the instrument. The carrying amounts of cash and due for banks, federal funds sold, demand and savings deposits and securities sold under repurchase agreements represent items which do not present significant market risks, are payable on demand or are of such short duration that the market value approximates carrying value. Investment securities are valued at the quoted market price for individual securities held. The fair value of loans is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers. Certificates of deposit are presented at estimated fair value using rates currently offered for deposits of similar remaining maturities. NOTE 15, Regulatory Matters The Company is required to maintain minimum amounts of capital to "risk weighted" assets, as defined by the banking regulators. At December 31, 1997, the Company is required to have minimum Tier 1 and Total capital ratios of 4.00% and 8.00% respectively. The Company's actual ratios at that date were 15.06% and 16.19%. The Company's leverage ratio at December 31, 1997 was 10.32%. The approval of the Comptroller of the Currency is required if the total of all dividends declared by a national bank in any calendar year exceeds the bank's net profits for that year combined with its retained net profits for the preceding two calendar years. Under this formula, the banking subsidiary can distribute as dividends to the Company in 1998, without approval of the Comptroller of the Currency, $5.6 million plus an additional amount equal to the Bank's retained net profits for 1998 up to the date of any dividend declaration. 32
OLD POINT FINANCIAL CORPORATION PARENT ONLY BALANCE SHEETS ____________________________________________________ As of December 31, Dollars in thousands 1997 1996 ____________________________________________________ ASSETS Cash in bank $289 $143 Investment securities 1,877 1,676 Total Loans 0 50 Investment in subsidiary 34,171 30,456 Other real estate owned 0 0 Other assets 8 75 ----- ----- TOTAL ASSETS $36,345 $32,400 ===== ===== LIABILITIES AND STOCKHOLDERS EQUITY Notes payable - bank $0 $0 Other liabilities 13 0 Total liabilities 13 0 Stockholders' equity 36,332 32,400 ----- ----- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $36,345 $32,400 ===== ===== <TABLE> <CAPTION> OLD POINT FINANCIAL CORPORATION PARENT ONLY INCOME STATEMENTS _______________________________________________________________ For the year ended December 31, Dollars in thousands 1997 1996 1995 _______________________________________________________________ INCOME <S> <C> <C> <C> Cash dividends from subsidiary $1,000 $1,000 $1,000 Interest and Fees on Loans 1 4 4 Interest income from investment securities 105 94 96 Other income 0 0 0 ---- ---- ---- TOTAL INCOME 1,106 1,098 1,100 EXPENSES Interest on borrowed money 0 0 0 Other expenses 50 251 274 ---- ---- ---- TOTAL EXPENSES 50 251 274 ---- ---- ---- Income before taxes and undistributed net income of subsidiary 1056 847 826 Income tax 19 (52) (59) ---- ---- ---- Net income before undistributed net income of subsidiary 1,037 899 885 Undistributed net income of subsidiary 3,053 2,546 1,457 ---- ---- ---- NET INCOME $4,090 $3,445 $2,342 </TABLE> 33
<TABLE> <CAPTION> OLD POINT FINANCIAL CORPORATION PARENT ONLY STATEMENT OF CASH FLOWS _________________________________________________________________________________ For the year ending December 31, 1997 1996 1995 Dollars in thousands _________________________________________________________________________________ CASH FLOWS FROM OPERATING ACTIVITIES <S> <C> <C> <C> Net income (Loss) $4,090 $3,445 $2,342 Adjustments to Reconcile Net Income to Net Cash provided by operating activities: Equity in undistributed (earnings) losses of subsidiaries (3,053) (2,546) (1,457) Market write-down on other real estate owned 0 0 0 Increase (decrease) in other assets 53 12 (17) Increase (decrease) in other liabilities 11 0 0 ---- ---- ---- Net cash provided (used) by operating activities 1,101 911 868 CASH FLOWS FROM INVESTING ACTIVITIES (Purchase)/Sales of Investments (200) 0 (192) Sale or repayment of investments in and advances to subsiiaries 0 0 0 (Purchase)/Sale of Premises and Equipment 16 0 (21) Loans to customers 48 2 2 ---- ---- ---- Net cash provided (used) by investing activities (136) 2 (211) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in borrowed money 0 0 0 Proceeds from issuance of common stock 231 0 88 Dividends paid (1,050) (892) (777) Other, net 0 0 0 ---- ---- ---- Net cash provided (used) by financing activities (819) (892) (689) Net increase in cash and due from banks 146 21 (32) Cash and due from banks at beginning of period 143 122 154 ---- ---- ---- Cash and due from banks at end of period $289 $143 $122 </TABLE> Accounting Rule Changes None. Regulatory Requirements and Restrictions For the reserve maintenance period in effect at December 31, 1997, 1996 and 1995 the bank was required to maintain with the Federal Reserve Bank of Richmond an average daily balance totalling approximately $400 thousand, $ 5.7 million, and $4.6 million respectively. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. 34
PART III Item 10. Directors and Executive Officers of the Registrant The eleven persons named below, all of whom currently serve as directors of the Company will be nominated to serve as directors until the 1999 Annual Meeting, or until their successors have been duly elected and have qualified. Amount and Nature of Principal Beneficial Ownership Director Occupation For As of March 17, 1998 Name and (Age) Since (1) Past Five Years (Percent of Class) (2)(3) Dr. Richard F. Clark (65) 1981 Pathologist 62,533 Sentara Hampton General Hospital 2.4% Gertrude S. Dixon (84) 1981 Real Estate Management 193,099 and Ownership 7.5% Russell Smith Evans Jr. (55) 1993 Assistant Treasurer and 1,650 * Corporate Fleet Manager Ferguson Enterprises G. Royden Goodson, III (42) 1994 President 4,362 * Warwick Plumbing & Heating Corp. Dr. Arthur D. Greene (53) 1994 Surgeon - Partner 3,264 * Tidewater Orthopaedic Associates Stephen D. Harris (56) 1988 Attorney-at-Law -Partner 8,800 * Geddy, Harris & Geddy John Cabot Ishon (51) 1989 President 12,780 * Hampton Stationery Eugene M. Jordan (74) 1964 Attorney-at-Law 28,000 Cumming, Hatchett & Jordan, P.C. 1.1% John B. Morgan, II (51) 1994 President 2,600 * Morgan-Marrow Insurance Dr. H. Robert Schappert (59) 1996 Veterinarian - Owner 89,740 Beechmont Veterinary Hospital 3.5% Robert F. Shuford (60) 1965 Chairman of the Board, 150,530 President & CEO Old Point Financial Corporation Chairman of the Board, President & CEO Old Point National Bank *Represents less than 1.0% of the total outstanding shares. 35
(1) Refers to the year in which the individual first became a director of the Bank. Dr. Richard F. Clark, Gertrude S. Dixon, Eugene M. Jordan, and Robert F. Shuford became directors of the Company upon consummation of the Bank's reorganization on October 1, 1984. (2) For purposes of this table, beneficial ownership has been determined in accordance with the provisions of Rule 13d-3 of the Securities Exchange Act of 1934 under which, in general, a person is deemed to be the beneficial owner of a security if he or she has or shares the power to vote or direct the voting of the security or the power to dispose of or direct the disposition of the security, or if he or she has the right to acquire beneficial ownership of the security within sixty days. (3) Includes shares held (i) by their close relatives or held jointly with their spouses, (ii) as custodian or trustee for the benefit of their children or others, or (iii) as attorney-in-fact subject to a general power of attorney - Dr. Clark, 200 shares; Mr. Evans, 650 shares; Dr. Greene, 1,968 shares; Mr. Harris, 400 shares; Mr. Ishon, 3,480 shares; Mr. Jordan, 16,970 shares; Mr. Morgan, 2,200 shares; Dr. Schappert, 81,370 shares; and Mr. Shuford, 75,590 shares. (4) Includes shares that may be acquired within 60 days pursuant to the exercise of stock options granted under the Old Point Stock Option Plans - Mr. Shuford 17,814. There are two family relationships among the directors and executive officers. Mr. Jordan is the father-in-law of Mr. Ishon. Mr. Shuford and Dr. Schappert are married to sisters. None of the directors serves as a director of any other company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. There were no delinquent Securities and Exchange Form 4 filings during 1997. In addition to the executive officer included in the preceding list of directors, the persons listed below were executive officers of the Company or its subsidiary as of December 31, 1997. Executive Principal Officer Occupation For Name and (Age) Since (1) Past Five Years Louis G. Morris (43) 1988 Senior Vice President and Treasurer Old Point Financial Corporation Cary B. Epes (49) 1993 Senior Vice President Old Point Financial Corporation W. Rodney Rosser (57) 1989 Senior Vice President and Secretary Old Point Financial Corporation Margaret P. Causby (47) 1992 Senior Vice President Old Point Financial Corporation Patricia A. Orendorff (51) 1994 Senior Vice President and Cashier Old Point National Bank Each of these executive officers owns less than 1% of the stock of the Company. (1) Cary B. Epes was Vice President and Commercial Account Manager at Crestar Bank. All other executive officers served in virtually the same capacity with the Company and/or the Bank prior to appointment as an executive officer. 36
Item 11. Executive Compensation Cash Compensation The following table presents a three year summary of all compensation paid or accrued by the Company and the Bank to the Company's Chief Executive Officer and each executive officer whose salary and bonus for 1997 exceeded $100,000. SUMMARY COMPENSATION TABLE Annual Compensation Name and Principal Position Year Salary(1) Bonus(2) All other Compensation(3)(4) Robert F. Shuford 1997 $148,500 $26,000 $16,092 Holding Company 1996 $147,900 $10,000 $10,857 Chairman, President 1995 $147,900 $ 0 $56,655 & CEO W. Rodney Rosser 1997 $86,100 $14,400 $8,499 EVP & Trust Officer 1996 $85,500 $ 8,000 $6,136 & Secretary 1995 $80,000 $ 7,500 $5,008 (1) Salary includes directors' fees as follows: Mr. Shuford - 1997 of $4,500, 1996 of $3,900, and 1995 of $3,900. (2) Bonus consideration for Mr. Shuford is paid in January of each year following the year in which earned so that end results could be evaluated by the Compensation Committee. Bonus consideration for Mr. Rosser is paid in the year in which earned. (3) Mr. Shuford has received other compensation as follows: 1997 1996 1995 Profit Sharing $4,342 $4,395 $3,233 Cash profit Sharing 4,088 0 0 401(k) Matching Plan 4,320 4,320 4,320 Split Dollar Life Insurance * 0 0 24,750 Sale of ISO ** 0 0 22,750 Group Term Insurance 3,342 2,142 1,602 ------- ------- ------- $16,092 $10,857 $56,655 * The Split Dollar policy was awarded to Mr. Shuford in 1995. When this occurs the gain must be treated as compensation to the employee. ** When an incentive stock option (ISO) share is sold prior to a one year vesting period, the gain on the sale is treated as compensation to the employee. (4) Mr. Rosser has received other compensation as follows: 1997 1996 1995 Profit Sharing $2,532 $2,564 $1,796 Cash Profit Sharing 2,385 0 0 401(k) Matching Plan 2,520 2,510 2,400 Group Term Insurance 1,062 1,062 812 ------- ------- ------- $8,499 $6,136 $5,008 37
Item 12. Security Ownership of Certain Beneficial Owners and Management Security ownership of certain beneficial owners and management is detailed in Part III, Item 10. of this Annual Report on Form 10-K. Item 13. Certain Relationships and Related Transactions Some of the Company directors, executive officers, and members of their immediate families, and corporations, partnerships and other entities of which such persons are officers, directors, partners, trustees, executors or beneficiaries, are customers of the Bank. As of December 31, 1997, borrowing by all policy making officers and directors amounted to $1.9 million. This amount represented 5.0% of the total equity capital accounts of the Company as of December 31, 1997. All loans and commitments to lend included in such transactions were made in the ordinary course of business, upon substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than normal risk of collectibility or present other unfavorable features. It is the policy of the Bank to provide loans to officers who are not executive officers and to employees at more favorable rates than those prevailing at the time for comparable transactions with other persons. These loans do not involve more than the normal risk of collectibility or present other unfavorable features. The Bank expects to have in the future similar banking transactions with directors, officers, principal stockholders and their associates. The law firm of Cumming, Hatchett and Jordan, P.C. serves as legal counsel to the Bank. Mr. Eugene M. Jordan is a member of the firm. During 1997, the firm received from the Bank a retainer and fees totalling $85,576. Morgan-Marrow Company, of which John B. Morgan, II is President, provided insurance for which the Bank paid $98,785 during 1997. Hampton stationery, of which John Cabot Ishon is the owner, Geddy, Harris & Geddy, of which Stephen D. Harris is a partner, and Warwick Plumbing & Heating Corp of which G. Royden Goodson, III is President provided products and services to the Bank during 1997. 38
PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8 A.1 Financial Statements: The following audited financial statements are included in Part II, Item 8, of this Annual Report on Form 10-K. Consolidated Balance Sheets - December 31, 1997 and 1996 Consolidated Statements of Income Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Changes in Stockholders' Equity Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows Years Ended December 31, 1997, 1996 and 1995 Notes to Financial Statements Auditor's Report A.2 Financial Statement Schedules: Schedule Location Average Balance Sheets, Net Interest Income and Rates Part I, Item 1 Analysis of Change in Net Interest Income Part I, Item 1 Interest Sensitivity Analysis Part I, Item 1 Investment Securities Part I, Item 1 Investment Security Maturities & Yields Part I, Item 1 Loans Part I, Item 1 Maturity Schedule of Selected Loans Part I, Item 1 Nonaccrual, Past Due and Restructured Loans Part I, Item 1 Analysis of the Allowance for Loan Losses Part I, Item 1 Allocation of the Allowance for Loan Losses Part I, Item 1 Deposits Part I, Item 1 Certificates of Deposit of $100,000 and more Part I, Item 1 Return on Average Equity Part I, Item 1 Short Term Borrowings Part I, Item 1 Lease Commitments Part I, Item 1 Other Real Estate Owned Part I, Item 1 Selected Financial Data Part II, Item 6 Capital Ratios Part II, Item 7 Dividends Paid and Market Price of Common Stock Part II, Item 7 Proceeds from sales and maturities of securities Part II, Item 8 Premises and Equipment Part II, Item 8 Stock Option Plan Part II, Item 8 Components of Income Tax Expense Part II, Item 8 Reconciliation of Expected and Reported Income Tax Expense Part II, Item 8 Pension Plan Part II, Item 8 Commitments and Contingencies Part II, Item 8 Fair Value of Financial Instruments Part II, Item 8 Directors and Executive Officer Part III, Item 10 Executive Compensation Part III, Item 11 39
A.3 Exhibits: 3 Articles of Incorporation and Bylaws 4 Not Applicable 9 Not Applicable 10 Not Applicable 11 Not Applicable 12 Not Applicable 13 Not Applicable 18 Not Applicable 19 Not Applicable 22 Subsidiaries of the Registrant 23 Not Applicable 24 Consent of Independent Certified Public Accountants 25 Powers of Attorney 27 Financial Data Schedule 28 Not Applicable 29 Not Applicable B. Reports on Form 8-K: A report on Form 8-K was filed on October 14, 1997 with the Securities and Exchange Commission regarding the Company's announcement of a stock dividend. 40
Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 27th day of March, 1998. OLD POINT FINANCIAL CORPORATION /s/Robert F. Shuford Robert F. Shuford, President Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in their capacities on the 27th day of March, 1997. Signature Title /s/Robert F. Shuford President and Director Robert F. Shuford Principal Executive Officer /s/Louis G. Morris Senior Vice President and Treasurer Louis G. Morris Principal Financial & Accounting Officer /s/Richard F. Clark * Director /s/Gertrude S. Dixon * Director /s/Russell S. Evans, Jr. * Director /s/G. Royden Goodson, III Director /s/Dr. Arthur D. Greene Director /s/Steven D. Harris * Director /s/John Cabot Ishon * Director /s/Eugene M. Jordan * Director /s/John B. Morgan * Director /s/Dr. H. Robert Schappert * Director 41