10-K 1 form10k123103.htm FORM 10-K

UNITED STATES
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, 2003

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to _______

Commission File Number 0-12896  

OLD POINT FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Virginia 54-1265373
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
 
1 West Mellen Street, Hampton, VA 23663
(Address of principal executive offices) (Zip Code)
 
(757)722-7451
(Registrant's telephone number
  including area code)
 
  Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Common Stock ($5.00 par value)

(Title of class)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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]

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes __ No X

        The aggregate market value of the voting stock held by non-affiliates was approximately $72 million on June 30, 2003. There were 3,987,149 shares of Common Stock outstanding at March 15, 2004.

DOCUMENTS INCORPORATED BY REFERENCE:

        Certain portions of the Registrant’s Definitive Proxy Statement (“the 2004 Proxy Statement”) for the 2004 Annual Meeting of Shareholders to be held April 27, 2004 will be incorporated by reference in Part III.

OLD POINT FINANCIAL CORPORATION

FORM 10-K

TABLE OF CONTENTS

PART I    
 
Item 1. Business 1 
Item 2. Properties 13 
Item 3. Legal Proceedings 13 
Item 4. Submission of Matters to a Vote of Security Holders 13 
 
Part II
 
Item 5. Market for Registrant's 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 7A. Quantitative and Qualitative Disclosures About Market Risk 19 
Item 8. Financial Statements and Supplementary Data 19 
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 41 
Item 9A. Controls and Procedures 42 
 
PART III
 
Item 10. Directors and Executive Officers of the Registrant 43 
Item 11. Executive Compensation 43 
Item 12. Security Ownership of Certain Beneficial Owners and Management 43 
Item 13. Certain Relationships and Related Transactions 43 
Item 14. Principal Accounting Fees and Services 43 
 
PART IV
 
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 44 

- I -

PART I

Item 1. 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 completed a spin-off of its trust department as of April 1, 1999. The newly formed organization is chartered as Old Point Trust and Financial Services, N.A. (“Trust”). Trust is a wholly owned subsidiary of the Company. The Company does not engage in any activities other than acting as a holding company for the common stock of the Bank and Trust. The principal business of the Company is conducted through its subsidiaries which continue to conduct business in substantially the same manner and from the same offices.

The Bank is a national banking association founded in 1922. The Bank has sixteen offices in the cities of Hampton, Newport News, Norfolk and Chesapeake, as well as 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.

As of December 31, 2003, the Company had assets of $645.9 million, loans of $405.1 million, deposits of $490.4 million, and stockholders’ equity of $63.3 million. At year end, the Company and its subsidiaries had a total of 264 employees, 26 of whom were part-time.

The Company’s trade area is Hampton Roads, which includes Williamsburg, Poquoson, Newport News, Hampton, Chesapeake, Norfolk, Virginia Beach, Portsmouth and Suffolk. The area also includes the Isle of Wight, James City, Gloucester and Mathews counties. According to the 2000 Hampton Roads Statistical Digest, there are more than 1.6 million people in the area with 30% of all jobs linked to the military. The service industry, which employed approximately 194,000 in 1999, is the biggest provider of jobs in Hampton Roads.

The banking industry is highly competitive in the Hampton Roads area. There are approximately twenty commercial and savings banks conducting business in the area. Six of these are major statewide banking organizations.

The Bank encounters competition for deposits and loans from banks, saving and loan associations, and credit unions in the area in which it operates. In addition, the Bank must compete for deposits in some instances with nationally marketed money market funds, brokerage firms and on-line or internet banks.

The Company and its subsidiaries are subject to regulation and examination by the Federal Reserve Board (“the Board”), the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation (“the FDIC”).

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.

TABLE I

AVERAGE BALANCE SHEETS, NET INTEREST INCOME* AND RATES*

For the years ended December 31,   2003     2002     2001  
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
 
Loans $387,137 $26,538 6.85% $362,228 $27,320 7.54% $332,097 $27,765 8.36%
Investment securities:
  Taxable 116,993 4,368 3.73% 84,867 4,279 5.04% 76,670 4,389 5.72%
  Tax-exempt 45,907 3,296 7.18% 49,097 3,540 7.21% 52,031 3,773 7.25%
 
    Total investment securities 162,900 7,664 4.70% 133,964 7,819 5.84% 128,701 8,162 6.34%
Federal funds sold 15,902 164 1.03% 16,120 250 1.55% 14,467 563 3.89%
 
  Total earning assets 565,939 34,366 6.07% 512,312 35,389 6.91% 475,265 36,490 7.68%
Reserve for loan losses (4,789) (4,304) (3,646)
  561,150 508,008 471,619
 
Cash and due from banks 13,906 11,478 9,862
Bank premises and equipment 14,170 14,718 15,715
Other assets 11,509 8,980 4,838
Total assets $600,735 $543,184 $502,034
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Time and savings deposits:
  Interest-bearing transaction accounts $10,160 $      35 0.34% $7,922 $      46 0.58% $6,559 $      88 1.34%
  Money market deposit accounts 120,206         817  0.68% 110,767 1,242 1.12% 100,577 2,159 2.15%
  Savings accounts 36,613 205 0.56% 31,940 302 0.95% 28,864 536 1.86%
  Certificates of deposit, $100,000 or more 56,944 1,597 2.80% 56,048 1,991 3.55% 49,072 2,672 5.45%
  Other certificates of deposit 147,822 4,704 3.18% 142,591 6,306 4.42% 142,987 8,202 5.74%
 
    Total time and savings deposits 371,745 7,358 1.98% 349,268 9,887 2.83% 328,059 13,657 4.16%
Federal funds purchased, securities sold under
  agreement to repurchase and FHLB advances 64,296 2,278 3.54% 52,274 2,038 3.90% 51,253 2,425 4.73%
Other short term borrowings 1,673 7 0.42% 2,172 31 1.43% 2,158 73 3.38%
 
  Total interest bearing liabilities 437,714 9,643 2.20% 403,714 11,956 2.96% 381,470 16,155 4.23%
Demand deposits 99,322     82,028     68,516
Other liabilities 2,613     2,363     2,327
 
  Total liabilities 539,649     488,105     452,313
Stockholders' equity 61,086     55,079     49,721
 
Total Liabilities and Stockholders' Equity $600,735     $543,184     $502,034
 
Net interest income/yield   $24,723 4.37%   $23,433 4.57%   $20,335 4.28%
 
Total deposits $471,067     $431,296     $396,575

* Computed on a fully taxable equivalent basis using a 34% rate

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 II

ANALYSIS OF CHANGE IN NET INTEREST INCOME *

Year 2003 over 2002 Year 2002 over 2001 Year 2001 over 2000
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
Loans $ 1,879  $(2,661) $     (782) $ 2,519  $(2,964)  $  (445) $ 2,477  $(1,337) $ 1,140 
Investment Securities:
 Taxable 1,620  (1,531) 89  469  (579) (110) 340  (334) 6 
 Tax-exempt (230) (14) (244) (213) (20) (233) (201) (116) (317)
 
  Total investment securities 1,390  (1,545) (155) 256  (599) (343) 139  (450) (311)
 
Federal funds sold (3) (83) (86) 64  (377) (313) 774  (422) 352 
  3,266  (4,289) (1,023) 2,839  (3,940) (1,101) 3,390  (2,209) 1,181 
 
INTEREST EXPENSE
Interest bearing transaction accounts 13  (24) (11) 18  (60) (42) 46  (67) (21)
Money market deposit accounts 106  (531) (425) 219  (1,136) (917) 230  (1,084) (854)
Savings accounts 44  (141) (97) 57  (291) (234) 16  (254) (238)
Certificate of deposits, $100,000 or more 32  (426) (394) 380  (1,061) (681) 805  (184) 621 
Other certificates of deposit 231  (1,833) (1,602) (23) (1,873) (1,896) 356  (17) 339 
  Total time and savings deposits 426  (2,955) (2,529) 651  (4,421) (3,770) 1,454  (1,607) (153)
 
Federal funds purchased and securities sold
  under agreement to repurchase 469  (229) 240  48  (435) (387) 132  (476) (344)
Other short-term borrowings (7) (17) (24) 0  (42) (42) 11  (65) (54)
Total expense for interest bearing liabilities 888  (3,201) (2,313) 699  (4,899) (4,199) 1,597  (2,148) (551)
 
Change in Net Interest Income $ 2,378  $(1,088) $ 1,290  $ 2,140  $    959  $ 3,098  $ 1,794  $   (62) $ 1,732 

* Computed on a fully taxable equvilent basis using a 34% rate.

Interest Sensitivity

The following table reflects the earlier of the maturity or repricing data for various assets and liabilities as of December 31, 2003.

TABLE III
INTEREST SENSITIVITY ANALYSIS

As of December 31, 2003 Within 4-12 1-5 Over 5  
Dollars in thousands 3 Months Months Years Years Total
Uses of funds
 
Federal funds sold $   14,969  $          -  $         -  $         -  $  14,969 
Taxable investments 6,899  4,054  106,192  22,572  139,717 
Tax-exempt investments 690  1,119  16,013  27,709  45,531 
  Total investments 22,558  5,173  122,205  50,281  200,217 
 
Loans:
 Commercial 23,134  3,754  19,595  2,740  49,223 
 Tax-exempt 176           -            -  2,668  2,844 
 Consumer 5,209  2,699  56,160  9,776  73,844 
 Real estate 71,211  5,778  137,077  60,646  274,712 
 Other 1,135  66  3,275  12  4,488 
Total loans 100,865  12,297  216,107  75,842  405,111 
Total earning assets $ 123,423  $   17,470  $338,312  $126,123  $605,328 
 
Sources of funds
 
Interest checking deposits 14,596            -            -            -  14,596 
Money market deposit accounts 125,808            -            -            -  125,808 
Regular savings accounts 39,264            -            -            -  39,264 
Certificates of deposit
  $100,000 or more 13,329  23,377  17,433            -  54,139 
Other time deposits 21,034  63,671  57,809            -  142,514 
Federal funds purchased, securities
  sold under agreements to
  repurchase and FHLB advances 38,007            -  15,000  35,000  88,007 
Other borrowed money 1,811            -            -            -  1,811 
Total interest bearing liabilities $ 253,849  $   87,048  $  90,242  $  35,000  $466,139 
 
Rate sensitivity GAP $(130,426) $ (69,578) $248,070  $  91,123  $139,189 
 
Cumulative GAP $(130,426) $(200,004) $  48,066  $139,189 

The Company was liability sensitive as of December 31, 2003. There were $130 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 3 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, 2003.

TABLE IV

INVESTMENT SECURITY MATURITIES AND YIELDS

  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, 2003            
 Maturities:
  Within 1 year $    7,023  5.31% $  1,784  7.43% $    8,807  5.74%
  After 1 year, but within 5 years $105,349  3.48% $15,396  6.86% $120,745  3.91%
  After 5 years, but within 10 years $  22,252  3.06% $19,893  6.67% $  42,145  4.76%
  After 10 years $           0  0.00% $  7,235  6.53% $    7,235  6.53%
TOTAL $134,624  3.51% $44,308  6.74% $178,932  4.31%
 
December 31, 2002 $  99,986  4.25% $49,285  6.76% $149,271  5.08%
December 31, 2001 $  80,013  5.49% $52,041  6.81% $132,054  6.01%

Yields are calculated on a fully tax equivalent basis using a 34% rate.

At December 31, 2003, the book value of other marketable equity securities with no stated maturity totaled $3.9 million with an weighted average yield of 3.32%. These securities consisted of Federal Home Loan Bank stock of $2.5 million yielding 3.20%, Federal Reserve stock of $169 thousand yielding 6.00%, Bankers Title of Hampton Roads stock yielding 64.44%, money market fund of $897 thousand yielding 0.78% and other securities of $200 thousand. The book value of other marketable securities with no stated maturity totaled $3.1 million, yielding 3.66%; and $3.2 million, yielding 4.66%; at December 31, 2002, and 2001 respectively.

III. Loan Portfolio

The following table shows a breakdown of total loans by type at December 31 for years 1999 through 2003:

TABLE V

LOANS

As of December 31, 2003 2002 2001 2000 1999
Dollars in thousands
Commercial and other $  53,711  $  52,183  $  51,608  $  62,181  $  62,257 
Real Estate Construction 32,844  29,822  27,056  15,219  11,461 
Real Estate Mortgage 241,868  204,946  177,237  155,367  140,004 
Tax Exempt 2,844  2,966  2,957  3,314  2,747 
Installment Loans to Individuals 73,844  88,044  87,625  83,829  65,178 
 
  Total $405,111  $377,961  $346,483  $319,910  $281,647 

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, 2003 is presented below:

TABLE VI
MATURITY SCHEDULE OF SELECTED LOANS

December 31, 2003 One year One through Over five
Dollars in thousands or less five years years Total
Commercial and other $28,090  $22,869  $  2,752  $53,711 
Real estate construction 26,784  5,640  420  32,844 
  Total $54,874  $28,509  $  3,172  $86,555 
 
Loans maturing after one year with:
Fixed interest rate   $28,509  $  3,172  $31,681 
Variable interest rate   $        --  $        --  $        -- 

The following table presents information concerning the aggregate amount of nonaccrual, past due and restructured loans as of December 31 for the years 1999 through 2003.

TABLE VII
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS

As of December 31, 2003  2002  2001  2000  1999 
Dollars in thousands
Nonaccrual loans $243  $314  $351  $ 37  $  514 
Accruing loans past due
 90 days or more 736  608  450  470  1,351 
 
Restructured loans none  none  none  none  none 
 
Interest income which would have been
 recorded under original loan terms 34  49  41  25  49 
 
Interest income recorded during the period 12  16  83  9  68 

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, 2003 such problem loans, not included in Table VII, amounted to approximately $4.7 million. There was one relationship in excess of $500 thousand.

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.

The following table shows an analysis of the Allowance for Loan Losses for the years 1999 through 2003.

TABLE VIII
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

For the year ended December 31, 2003  2002  2001  2000  1999 
Dollars in thousands
Balance at beginning of period $    4,565  $    3,894  $    3,649  $    3,111  $    2,855 
 
Charge Offs:
Commercial, financial and agricultural 149  545  680  266  138 
Real estate construction --  8  --  --  -- 
Real estate mortgage 244  98  19  --  74 
Consumer loans 802  761  724  486  581 
Other loans --  --  36  --  -- 
  Total charge offs 1,195  1,412  1,459  752  793 
 
Recoveries:
Commercial, financial and agricultural 219  90  222  418  104 
Real estate construction--  --  --  --  -- 
Real estate mortgage 6  5  21  3  1 
Consumer loans 237  288  256  244  294 
Other loans --  --  5  --  -- 
Total recoveries 462  383  504  665  399 
 
Net charge offs 733  1,029  955  87  394 
 
Additions charged to operations 1,000  1,700  1,200  625  650 
Balance at end of period $    4,832  $    4,565  $    3,894  $    3,649  $    3,111 
 
Selected loan loss statistics
Loans (net of unearned income):
  End of period $405,111  $377,961  $346,483  $319,910  $281,647 
  Daily average $387,137  $362,228  $332,097  $303,826  $259,320 
 
Net charge offs to average total loans 0.19% 0.28% 0.29% 0.03% 0.15%
Provision for loan losses to average total loans 0.26% 0.47% 0.36% 0.21% 0.25%
Provision for loan losses to net charge offs 136.43% 165.21% 125.65% 718.39% 164.97%
Allowance for loan losses to period end loans 1.19% 1.21% 1.12% 1.14% 1.10%
Earnings to loan loss coverage* 15.55   8.89   7.90   76.57   17.32  

* Income before taxes plus provision for loan losses, divided by net charge-offs.

The following table shows the amount of the Allowance for Loan Losses allocated to each category at December 31 for the years 1999 through 2003.

TABLE IX
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

As of December 31,   2003   2002   2001   2000   1999
    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   Category   Category   Category   Category
  Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
Commercial and other 1,032 13.96% 781 14.59% 667 15.75% 742 20.47% 828 23.08%
Real Estate Construction 106 8.11% 149 7.89% 119 7.81% 49 4.76% 40 4.07%
Real Estate Mortgage 743 59.70% 1,362 54.22% 791 51.15% 212 48.57% 195 49.71%
Consumer 777 18.23% 1,135 23.30% 921 25.29% 519 26.20% 414 23.14%
Unallocated 2,174   1,138   1,396   2,127   1,634
Total $4,832 100.00% 4,565 100.00% $3,894 100.00% $3,649 100.00% $3,111 100.00%

V. Deposits

The following table shows the average balances and average rates paid on deposits for the years ended December 31, 2003, 2002 and 2001.

TABLE X

DEPOSITS

For the year ended December 31, 2003 2002 2001
Average Average Average Average Average Average
Dollars in thousands Balance Rate Balance Rate Balance Rate
Interest bearing transaction accounts $  10,160 0.34% $    7,922 0.58% $    6,559 1.34%
Money market deposit accounts 120,206 0.68% 110,767 1.12% 100,577 2.15%
Savings accounts 36,613 0.56% 31,940 0.95% 28,864 1.86%
Certificate of deposit, $100,000 or more 56,944 2.80% 56,048 3.55% 49,072 5.45%
Other certificate of deposit 147,822 3.18% 142,591 4.42% 142,987 5.74%
Total interest bearing deposits 371,745 2.83% 349,268 2.83% 328,059 4.16%
Non-interest bearing demand deposits 99,322   82,028   68,516
Total deposits $471,067   $431,296   $396,575

The following table shows certificates of deposit in amounts of $100,000 or more as of December 31, 2003, 2002, and 2001 by time remaining until maturity.

TABLE XI

CERTIFICATE OF DEPOSIT $100,000 AND MORE

Dollars in thousands 2003 2002 2001
Maturing in
3 months or less $12,591 $12,527 $  8,445
3 through 6 months 9,191 10,080 13,397
6 through 12 months 14,686 11,047 11,427
over 12 months 17,671 19,791 12,535
  $54,139 $53,445 $45,804

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.

  2003  2002  2001 
Return on average assets 1.30% 1.30% 1.14%
Return on average equity 12.81% 12.80% 11.48%
Dividend payout ratio 27.35% 25.19% 28.17%
Average equity to average assets 10.17% 10.14% 9.90%

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 2003, 2002, and 2001 are presented in the following table.

TABLE XII
SHORT TERM BORROWINGS

2003 2002 2001
Dollars in thousands Balance Rate Balance Rate Balance Rate
Balance at December 31,
Federal funds purchased $        --  0.00% $        --  0.00% $        --  0.00%
Securities sold under
 agreement to repurchase 38,007  0.93% 21,283  1.13% 28,321  1.67%
U. S. treasury demand notes
 and other borrowed money 1,811  0.75% 6,000  1.00% 369  1.50%
Total $39,818    $27,283    $28,690 
 
Average daily balance outstanding:
Federal funds purchased $     116  0.53% $         1  2.16% $         1  2.49%
Securities sold under
 agreement to repurchase 22,162  1.01% 25,475  1.50% 26,252  3.38%
U. S. treasury demand notes
 and other borrowed money 1,673  0.96% 2,172  1.43% 2,158  3.38%
Total $23,951  3.46% $27,648  3.75% $28,411  4.65%
 
The maximum amount outstanding
 at any month end:
Federal funds purchased $        --    $        --    $        -- 
Securities sold under
 agreement to repurchase $38,502    $26,098    $28,546 
U. S. treasury demand notes
 and other borrowed money $  6,000    $  6,000    $  6,165 

Item 2. Properties

The Bank owns the Main Office, five office buildings, and ten 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 four branches are leased from unrelated parties under leases with renewal options which expire anywhere from 10-15 years.

For more information concerning the commitments under current leasing agreements, see Note 12. 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 7. 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, 2003.

Part II

Item 5. Market for Registrant’s Common Stock and Related Stockholder Matters

Beginning in 2000 the common stock of Old Point Financial Corporation was quoted on the Nasdaq SmallCap under the symbol “OPOF”. The approximate number of shareholders of record as of December 31, 2003 was 1,342. The range of high and low prices and dividends per share of the Company’s common stock for each quarter during 2003 and 2002 is presented in Part II. Item 7. of this Annual Report on Form 10-K. Additional information related to stockholder matters can be found in Note 17. Regulatory Matters of the Notes to Financial Statements found in Item 8. Financial Statements and Supplementary Data of this Report on Form 10K.

Item 6. Selected Financial Data

The following table summarizes the Company’s performance for the past five years.

SELECTED FINANCIAL HIGHLIGHTS

Years Ended December 31, 2003 2002 2001 2000 1999
(Dollars in Thousands except per share data)
RESULTS OF OPERATIONS
 
Interest income $33,167  $34,112  $35,108  $33,644  $29,483 
Interest expense 9,643  11,956  16,156  16,707  13,862 
Net interest income 23,524  22,156  18,952  16,937  15,621 
Provision for loan loss 1,000  1,700  1,200  625  650 
Net interest income after provision for loan loss 22,524  20,456  17,752  16,312  14,971 
Gains (losses) on sales of investment securities 60  14  (1) 44  (54)
Noninterest income 7,408  7,128  6,543  5,641  5,440 
Noninterest expenses 19,596  18,291  16,850  15,657  14,320 
Income before taxes 10,396  9,307  7,444  6,340  6,037 
Income taxes 2,571  2,256  1,734  1,207  1,215 
Net income $7,825  $7,051  5,710  5,133  $4,822 
 
FINANCIAL CONDITION
 
Total assets $645,915  $576,623  $518,759;  $477,096  $436,294 
Total deposits 490,422  454,052  412,303  374,779  360,918 
Total loans 405,111  377,961  346,483  319,910  281,647 
Stockholders'equity 63,299  58,116  50,912  46,497  40,814 
Average assets 600,733  543,184  502,035  459,603  423,681 
Average equity 61,085  55,079  49,721  43,258  40,840 
 
PERTINENT RATIOS
 
Return on average assets 1.30% 1.30% 1.14% 1.12% 1.14%
Return on average equity 12.81% 12.80% 11.48% 11.87% 11.81%
Dividends paid as a percent of net income 27.35% 25.19% 28.17% 29.23% 28.89%
Average equity as a percent of average assets 10.17% 10.14% 9.90% 9.41% 9.64%
 
PER SHARE DATA
 
Basic EPS $1.98  $1.80  $1.47  $1.32  $1.25 
Cash dividends declared 0.540  0.453  0.413  0.387  0.360 
Book value 15.92  14.76  13.06  11.97  10.53 
 
GROWTH RATES
 
Year end assets 12.02% 11.15% 8.73% 9.35% 7.96%
Year end deposits 8.01% 10.13% 10.01% 3.84% 5.10%
Year end loans 7.18% 9.09% 8.31% 13.59% 19.41%
Year end equity 8.92% 14.15% 9.50% 13.92% 2.00%
Average assets 10.59% 8.20% 9.23% 8.48% 11.27%
Average equity 10.90% 10.78% 14.94% 5.92% 6.01%
Net income 10.98% 23.49% 11.24% 6.45% 4.01%
Cash dividends declared 19.21% 9.69% 6.72% 7.50% 12.50%
Book value 7.84% 13.07% 9.11% 13.60% 1.69%

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 $7.83 million, or $1.98 per share in 2003 compared to $7.05 million, or $1.80 per share in 2002 and $5.71 million, or $1.47 per share in 2001. Return on average assets was 1.30% in 2003, 1.30% in 2002 and 1.14% in 2001. Return on average equity was 12.81% in 2003, 12.80% in 2002 and 11.48% in 2001. For the past five years return on average assets has averaged 1.20% and return on average equity has averaged 12.15%. 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 $24.72 million in 2003, up $1.29 million, or 6% from $23.43 million in 2002 which was up $3.09 million, or 15% from $20.34 million in 2001. 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 decreased to 4.37% in 2003 from 4.57% in 2002, which was up from 4.28% in 2001.

        Tax equivalent interest income decreased $1.02 million, or 3%, in 2003. Average earning assets grew $53.63 million, or 10%. Total average loans increased $24.91 million, or 7%, while average investment securities increased $28.94 million, or 22%. The yield on earning assets decreased in 2003 by eighty-four basis points primarily due to declining interest rates.

        Interest expense decreased $2.31 million or 19%, in 2003 while interest bearing liabilities increased 8% in 2003. The cost of funding liabilities decreased seventy-six basis points. The market experienced one rate reduction by the Federal Reserve in 2003.

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. The provision decreased to $1.00 million in 2003 and was $1.70 million in 2002 and $1.20 million in 2001. The decrease was due to a decline in the net charge offs in 2003 as detailed in the next paragraph as well as a surplus being reflected in the quarterly allowance analysis.

        Loans charged off during 2003 totaled $1.20 million compared to $1.41 million in 2002 and $1.46 million in 2001. Recoveries amounted to $462 thousand in 2003, $383 thousand in 2002 and $504 thousand in 2001.

PROVISION/ALLOWANCE FOR LOAN LOSSES (cont)

        The Company’s net loans charged off to year-end loans were 0.18% in 2003, 0.27% in 2002, and 0.28% in 2001. The allowance for loan losses, as a percentage of year-end loans, was 1.19% in 2003, 1.21% in 2002, and 1.12% in 2001.

        As of December 31, 2003, nonperforming assets were $408 thousand, down from $1.14 million at year-end 2002. Nonperforming assets consist of loans in nonaccrual status and other real estate. The 2003 total consisted of other real estate of $165 thousand and $243 thousand in nonaccrual loans. The other real estate consists of $165 thousand in commercial property originally acquired as a potential branch site and now held for sale. Nonaccrual loans consisted of $243 thousand in commercial real estate loans. Loans still accruing interest but past due 90 days or more increased to $736 thousand as of December 31, 2003 compared to $608 thousand as of December 31, 2002.

        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 $326 thousand, or 5% in 2003 from 2002 compared to an increase of $600 thousand, or 9% in 2002 from 2001. The growth in other income is attributed to increases in service charges on deposit accounts, merchant processing fees and Bank Owned Life Insurance (BOLI) income. Service charges on deposit accounts increased by $62 thousand in 2003. Merchant processing fees increased by $44 thousand in 2003. The Bank Owned Life Insurance (BOLI) on certain officers generated a $96 thousand increase in revenue over 2002.

OTHER EXPENSES

        Other expenses increased $1.31 million or 7% in 2003 over 2002 after increasing 9% in 2002 from 2001. Salary expense increased by $1.0 million or 9% as a result of normal yearly salary increases and the addition of new positions within the Company. The Company opened a new branch in Chesapeake in October 2003. Several new positions were added as a result of an organizational restructuring to accommodate anticipated future growth.

ASSETS

        At December 31, 2003, the Company had total assets of $645.9 million, up 12% from $576.6 million at December 31, 2002. Average assets in 2003 were $600.7 million compared to $543.2 million in 2002. The growth in assets in 2003 was due to the increase in investments, which were up 19% and loans, which were up 7% in 2003.

LOANS

        Total loans as of December 31, 2003 were $405.1 million, up 7% from $378.0 million at December 31, 2002. The Company realized significant growth in the real estate category of loans. Footnote 4 of the financial statements details the loan volume by category for the past two years.

INVESTMENT SECURITIES

        At December 31, 2003 total investment securities were $185.2 million, up 19% from $156.0 million on December 31, 2002. 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.

DEPOSITS

        At December 31, 2003, total deposits amounted to $490.4 million, up 8% from $454.1 million on December 31, 2002. Non-interest bearing deposits increased $23.5 million, or 26%, at year-end 2003 over 2002. Savings deposits increased $20.6 million, or 13%, in 2003 over 2002. Certificates of Deposit decreased $7.7 million or 4% in 2003 from 2002.

STOCKHOLDERS’ EQUITY

        Total stockholders’ equity as of December 31, 2003 was $63.3 million, up 9% from $58.1 million on December 31, 2002. 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 2003, 2002 and 2001.

    2003  2003  2002  2001 
    Regulatory
    Requirements
  Tier 1 4.00% 14.15% 13.91% 13.97%
  Total Capital 8.00% 15.26% 15.12% 15.05%
  Tier 1 Leverage 3.00% 9.81% 9.79% 9.77%

        Year-end book value was $15.92 in 2003 and $14.76 in 2002. Cash dividends were $2.1 million, or $.54 per share in 2003 and $1.8 million, or $.453 per share in 2002. The common stock of the Company has not been extensively traded. The table below shows the high and low closing prices for each quarter of 2003 and 2002. The stock is quoted on the Nasdaq Small Cap under the symbol “OPOF” and the prices below are based on trade information. There were 1342 stockholders of the Company as of December 31, 2003. This stockholder count does not include stockholders who hold their stock in a nominee registration.

STOCKHOLDERS’ EQUITY (cont)

The following is a summary of the dividends paid and market price on Old Point Financial Corporation common stock for 2003 and 2002.

  2003 2002
    Market Value   Market Value
  Dividend High Low Dividend High Low
1st Quarter $0.12 $37.13 $25.00 $0.106 $19.88 $18.07
2nd Quarter $0.12 $39.00 $29.00 $0.107 $22.73 $20.00
3rd Quarter $0.15 $34.30 $27.30 $0.120 $22.87 $20.80
4th Quarter $0.15 $34.31 $28.25 $0.120 $24.54 $21.37

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.

        The Company’s sources of funds include a large stable deposit base and secured advances from the Federal Home Loan Bank. The Company structures its Balance Sheet such that liquid assets, such as loans are funded through customer deposits, long-term debt, other liabilities and capital.

        The Company has available short-term unsecured borrowed funds in the form of federal funds with correspondent banks. As of year-end 2003, the company had available $30 million in federal funds to handle any short-term borrowing needs.

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.

OFF-BALANCE SHEET LENDING RELATED COMMITMENTS

        The Company had $109.5 million in consumer and commercial commitments at December 31, 2003. The Company also had $1.6 million at December 31, 2003 in letters of credit that the Bank will fund if certain future events occur.

        Old Point has the liquidity and capital resources to handle these commitments in the normal course of business.

CONTRACTUAL OBLIGATIONS

        The following table provides the Company’s contractual obligations as of December 31, 2003:

Contractual Total Less than 1 1-3 years 3-5 years More than 5
Obligation   year     years
Long-term $50,000,000 $0 $15,000,000 $0 $35,000,000
Debt
Obligations
Operating $1,516,759 $306,481 $509,268 $408,939 $291,071
Lease
Obligations

Long-term debt obligations are Federal Home Loan Bank advances.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

For information regarding Quantitative and Qualitative Disclosures About Market Risk, see Part I, “Business: Statistical Information – I. Distribution of Assets, Liabilities and Shareholder’s Equity; Interest Rates and Interest Differential”.

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.

The following are the summarized financial statements of the Company.

INDEPENDENT AUDITOR’S REPORT

WITT MARES EGGLESTON SMITH, PLC

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 subsidiaries as of December 31, 2003 and 2002, 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, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 financial position of Old Point Financial Corporation and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 3l, 2003, in conformity with accounting principles generally accepted in the United States of America.

February 27, 2004
Norfolk, Virginia

/s/WITT MARES EGGLESTON SMITH, PLC


WITT MARES EGGLESTON SMITH, PLC

CONSOLIDATED BALANCE SHEETS

  December 31,
2003  2002 
  (in thousands)
ASSETS    
Cash and due from banks $  18,384  $  14,437 
Federal funds sold 14,969  8,710 
  Cash and cash equivalents  33,353  23,147 
Securities available for sale  172,859  128,488 
Securities held to maturity  12,389  27,516 
Loans, net of allowance for loan losses of $4,832 and $4,565 400,279  373,396 
Foreclosed assets --  665 
Premises and equipment, net  14,163  13,280 
Other assets 12,872  10,131 
  $645,915  $576,623 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
  Non interest-bearing deposits $114,101  $  90,621 
  Savings deposits 179,668  159,077 
  Certificates of Deposit 196,653  204,354 
   Total deposits 490,422  454,052 
Federal funds purchased and repurchase agreements 38,007  21,283 
Demand notes issued to the United States Treasury 1,811  6,000 
Federal Home Loan Bank advances 50,000  35,000 
Accrued expenses and other liabilities 2,376  2,172 
   Total liabilities 582,616  518,507 
 
Stockholder's equity:
Common stock, $5 par value, 10,000,000 shares authorized;
  3,976,019 and 3,936,720 shares issued 19,880  19,684 
Additional paid-in capital 12,433  11,165 
Retained earnings 30,246  25,598 
Accumulated other comprehensive income (loss) 740  1,669 
   Total stockholders' equity 63,299  58,116 
  $645,915  $576,623 

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF INCOME

  Years Ended December 31,
  2003 2002 2001
  (in thousands, except per share data)
Interest and dividend income:      
     Loans, including fees $26,459  $27,247  $ 27,666 
     Debt securities:
       Taxable 4,255  4,182  4,269 
       Tax-exempt 2,175  2,337  2,490 
     Dividends 113  96  120 
     Trading account securities --  --  -- 
     Other 165  250  563 
           Total interest and dividend income 33,167  34,112  35,108 
 
Interest expense:
     Savings deposits 1,057  1,590  2,783 
     Certificates of Deposit 6,301  8,297  10,874 
     Federal funds purchased and securities sold under
       agreements to repurchase 224  382  887 
     Demand notes issued to the United States Treasury 7  31  73 
     Federal Home Loan Bank advances 2,054  1,656  1,539 
           Total interest expense 9,643  11,956  16,156 
     Net interest income 23,524  22,156  18,952 
     Provision for loan losses 1,000  1,700  1,200 
     Net interest income, after provision for loan losses 22,524  20,456  17,752 
 
Noninterest income:
     Fiduciary activities 2,224  2,223  2,738 
     Service charges on deposit accounts 2,942  2,880  2,640 
     Other service charges, commissions and fees 1,263  1,083  746 
     Net gain (loss) on available-for-sale securities 60  14  (1)
     Other 979  942  419 
          Total noninterest income (charges) 7,468  7,142  6,542 
 
Noninterest expense:
     Salaries and employee benefits 12,109  11,077  10,115 
     Occupancy and equipment 2,923  2,811  2,722 
     Other 4,564  4,403  4,013 
          Total noninterest expenses 19,596  18,291  16,850 
Income before income taxes 10,396  9,307  7,444 
Income tax expenses 2,571  2,256  1,734 
Net income $  7,825  $  7,051  $   5,710 
 
Basic Earnings per Share
Average shares outstanding (in thousands) 3,959  3,914  3,891 
Net income per share of common stock $    1.98  $    1.80  $     1.47 
 
Diluted Earnings per Share
Average shares outstanding (in thousands) 4,073  3,994  3,918 
Net income per share of common stock $    1.92  $    1.77  $     1.46 

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2003 2002 2001
Dollars in Thousands
CASH FLOWS FROM OPERATING ACTIVITIES      
Net income $     7,825  $     7,051  $     5,710 
Adjustments to reconcile net income to net cash
 provided by operating activities:
  Depreciation and amortization 1,325  1,361  1,431 
  Provision for loan losses 1,000  1,700  1,200 
  (Gains) losses on sale of investment securities, net (60) (14) 1 
  Net amortization and accretion of securities 45  75  45 
  Net (increase) decrease in trading account --  --  -- 
  Loss on disposal of equipment 6  94  4 
  (Gains) loss on sale of other real estate owned 41  (0) (17)
  (Increase) decrease in other assets
    (net of tax effect of FASB 115 adjustment) (2,345) (6,011) 42 
  Increase (decrease) in other liabilities 43  (48) (193)
    Net cash provided by operating activities 7,880  4,208  8,223 
 
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of investment securities (163,267) (78,093) (50,955)
  Proceeds from maturities and calls of securities 132,727  59,582  32,099 
  Proceeds from sales of available - for - sale securities 147  1,350  6,923 
  Proceeds from sales of held - to - maturity securities --  --  -- 
  Loans made to customers (176,139) (159,417) (124,190)
  Principal payments received on loans 148,257  126,910  96,661 
  Purchases of premises and equipment (2,215) (833) (795)
  Proceeds from sales of premises and equipment 1  517  -- 
  Additions to other real estate owned (605) (1,661) (713)
  Proceeds from sales of other real estate owned 1,229  1,835  477 
    Net cash provided by (used in) investing activities (59,865) (49,810) (40,493)
 
CASH FLOWS FROM FINANCING ACTIVITIES
  Increase (decrease) in non-interest bearing deposits 23,480  10,643  14,922 
  Increase (decrease) in savings deposits 20,591  18,229  13,188 
  Proceeds from the sale of Certificates of Deposit 77,434  116,702  67,117 
  Payments for maturing Certificates of Deposit (85,135) (103,825) (57,703)
  Increase (decrease) in federal funds purchased and
   repurchase agreements 16,723  (7,038) 1,283 
  Increase (decrease) in Federal Home Loan Bank advances 15,000  10,000  -- 
  Increase (decrease) in interest bearing
   demand notes and other borrowed money (4,189) 5,631  (1,720)
  Proceeds from issuance of common stock 427  378  154 
  Dividends paid (2,140) (1,776) (1,608)
    Net cash provided by financing activities 62,191  48,944  35,633 
 
    Net increase (decrease) in cash and cash equivalents 10,206  3,342  3,363 
     Cash and cash equivalents at beginning of period 23,147  19,805  16,442 
    Cash and cash equivalents at end of period $   33,353  $   23,147  $   19,805 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash payments for:
    Interest $     9,819  $   12,251  $   16,406 
    Income taxes $     2,571  $     2,256  $     1,775 
 
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
  Unrealized gain (loss) on investment
    securities, net of tax $      (767) $     1,917  $        513 
 
 Additional minimum liability related to pension $      (162) $      (366) $      (354)
 
 Transfer of property from Premises and Equipment to Other
   Real Estate Owned $                $        515  $          -- 

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Years ended December 31, 2003, 2002 AND 2001

          Accumulated  
  Shares of Common Additional   Other
  Common Stock Paid-in Retained Comprehensive
  Stock (Par Value) Capital Earnings Income (Loss) Total
  (in thousands, except share data)
 
Balance at December 31, 2000 2,590,540  $ 12,953  $ 10,288  $ 23,297  $      (41) $ 46,497 
   Comprehensive income:
     Net income   --  --  5,710  --  5,710 
   Change in net unrealized gain (loss) on
     securities available for sale --  --  --  --  513  513 
   Minimum pension liability adjustment   --  --  --  (354) (354)
       Total comprehensive income   --  --  5,710  159  5,869 
   Sale of stock 9,037  45  167  (58) --  154 
   Cash dividends declared ($.413 per share)   --  --  (1,608) --  (1,608)
Balance at December 31, 2001 2,599,577  $ 12,998  $ 10,455  $ 27,341  $      118  $ 50,912 
 
   Comprehensive income:
     Net income   --  --  7,051  --  7,051 
   Change in net unrealized gain (loss) on
     securities available for sale   -- -- -- 1,917  1,917 
   Minimum pension liability adjustment   --  --  --  (366) (366)
       Total comprehensive income   --  --  7,051  1,551  8,602 
   Sale of stock 37,400  140  710  (472) --  378 
   Stock dividend declared 1,299,743 6,546    (6,546)   -- 
   Cash dividends declared ($.453 per share)   --  --  (1,776) --  (1,776)
Balance at December 31, 2002 3,936,720  $ 19,684  $ 11,165  $ 25,598  $   1,669  $ 58,116 
 
   Comprehensive income:
     Net income   --  --  7,825  --  7,825 
   Change in net unrealized gain (loss) on
     securities available for sale --  --  --  (767) (767)
   Minimum pension liability adjustment   --  --  --  (162) (162)
       Total comprehensive income   --  --  7,825  (929) 6,896 
   Sale of stock 39,299  196  1,268  (1,037) --  427 
   Cash dividends declared ($.54 per share)   --  --  (2,140) --  (2,140)
Balance at December 31, 2003 3,976,019  $ 19,880  $ 12,433  $ 30,246  $      740  $      63,299 

See Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1, Significant Accounting Policies

PRINCIPLES OF CONSOLIDATION:

The consolidated financial statements include the accounts of Old Point Financial Corporation (“the Company”) and its wholly-owned subsidiaries The Old Point National Bank of Phoebus (“the Bank”) and Old Point Trust & Financial Services N.A. (“Trust”). All significant intercompany balances and transactions have been eliminated in consolidation.

NATURE OF OPERATIONS:

Old Point Financial Corporation is a two-bank holding company that conducts substantially all of its operations through its subsidiaries, The Old Point National Bank of Phoebus and Old Point Trust and Financial Services, N.A. The Bank services individual and commercial customers, the majority of which are in Hampton Roads. The Bank has sixteen branch offices. The Bank offers a full range of deposit and loan products to its retail and commercial customers. Substantially all of the Bank’s deposits are interest bearing. The majority of the Bank’s loan portfolio is secured by real estate. Trust offers a full range of services for individuals and businesses. Products and services include retirement planning, estate planning, financial planning, trust accounts, tax services, and investment management services.

USE OF ESTIMATES:

In preparing consolidated financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of deferred tax assets.

CASH AND CASH EQUIVALENTS:

For purposes of the consolidated statements of cash flows, cash and cash equivalents includes cash and balances due from banks and federal funds sold, all which mature within ninety days.

INVESTMENT SECURITIES:

Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (SFAS 115), addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. Those investments are to be classified in three categories and accounted for as follows:

o Held-to-maturity — Debt securities for which the Corporation has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity.
o Trading — Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading account securities and recorded at their fair values. Unrealized gains and losses on trading account securities are included immediately in income.
o Available-for-sale — Debt and equity securities not classified as either held-to-maturity securities or trading account securities are classified as available-for-sale securities and recorded at fair value, with unrealized gains and losses reported as a component of comprehensive income. Gains and losses on the sale of available-for-sale securities are determined using the specific identification method. Premiums and discounts are recognized in interest income using the interest method over the period to maturity.

LOANS:

The Corporation grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout Hampton Roads. The ability of the Corporation’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield on the related loan.

Accrual of interest is discontinued on a loan when management believes, after considering collection efforts and other factors that the borrower’s financial condition is such that collection of interest is doubtful.

All interest accrued but not collected for loans that are placed on non-accrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

LOANS HELD FOR SALE:

Loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by aggregate outstanding commitments from investors or current investor yield requirements. Net unrealized losses are recognized through a valuation allowance by charges to income.

Mortgage loans held for sale are generally sold with the mortgage servicing rights.

ALLOWANCE FOR LOAN LOSSES:

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as either doubtful or substandard. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify individual consumer and residential loans for impairment disclosures.

OFF-BALANCE SHEET CREDIT RELATED FINANCIAL INSTRUMENTS:

In the ordinary course of business, the Corporation has entered into commitments to extend credit, including commitments under commercial letters of credit, and lines of credit. Such financial instruments are recorded when they are funded.

OTHER REAL ESTATE OWNED:

Other real estate owned is carried at the lower of cost or estimated fair value and consists of foreclosed real property and other property held for sale. The estimated fair value is reviewed periodically by management and any write-downs are charged against current earnings.

PREMISES AND EQUIPMENT:

Land is carried at cost. Buildings and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated on both straight-line and accelerated methods and are charged to expense over the estimated useful lives of the related assets. Costs of maintenance and repairs are charged to expense as incurred.

INCOME TAXES:

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the new deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

PENSION PLAN:

The Company has a non-contributory defined benefit pension plan covering substantially all of its employees. Benefits are based on years of service and average earnings during the highest average sixty-month period during the final one hundred and twenty months of employment.

The Company’s policy is to fund the maximum amount of contributions allowed for tax purposes. The Bank accrues an amount equal to its actuarially computed obligation under the plan.

The actuarial valuation was performed using the frozen initial liability cost method. Under this method, the Bank’s contribution equals the sum of the amount necessary to amortize the frozen initial liability (past service base) over a period of years and the normal cost of the plan.

STOCK COMPENSATION PLANS:

Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, encourages all entities to adopt a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No.25, Accounting for Stock Issued to Employees, whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the stock. Stock options issued under the Corporation’s stock option plan have no intrinsic value at the grant date, and under Opinion No. 25 no compensation cost is recognized for them. The Corporation has elected to continue with the accounting methodology in Opinion No. 25 and, as a result, has provided pro forma disclosures of net income and earnings per share and other disclosures, as if the fair value based method of accounting had been applied. The pro forma disclosures include the effects of all unexpired awards. (See Note 10.)

EARNINGS PER COMMON SHARE:

Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Corporation relate solely to outstanding stock options, and are determined using the treasury stock method.

OTHER COMPREHENSIVE INCOME:

The accumulated other comprehensive income at December 31 2003 is comprised of unrealized security gains (loss) of $1.6 million net of taxes of $836 thousand and the minimum pension liability adjustment of $882 thousand net of a tax benefit of $459 thousand.

TRUST ASSETS AND INCOME:

Assets held by Trust are not included in the financial statements, because such items are not assets of the Company. In accordance with industry practice, trust service income is recognized primarily on the cash basis. Reporting such income on the accrual basis would not materially affect net income.

ADVERTISING EXPENSE:

Advertising expenses are expensed as incurred.

RECLASSIFICATIONS:

Certain amounts in the financial statements have been reclassified to conform with classifications adopted in the current year.

RECENT ACCOUNTING PRONOUNCEMENTS:

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46) which establishes guidance for determining when an entity should consolidate another entity that meets the definition of a variable interest entity. The Interpretation had no effect on the Corporation’s consolidated financial statements.

In April 2003, the FASB issued SFAS No.149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This Statement amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. This statement is effective for contracts entered into or modified after June 30, 2003, except in certain circumstances, and for hedging relationships designated after June 30, 2003. This Statement had no effect on the Corporation’s consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement provides new rules on the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. Such financial instruments include mandatorily redeemable shares, instruments that require the issuer to buy back some of its shares in exchange for cash or other assets, or obligations that can be settled with shares, the monetary value of which is fixed. Most of the guidance in SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 30, 2003. This Statement had no effect on the Corporation’s consolidated financial statements.

In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employer’s Disclosures about Pensions and Postretirement Benefits. This Statement requires additional disclosures about the assets, obligations and cash flows of defined benefit pension and postretirement plans, as well as the expense recorded for such plans. As of December 31, 2003, the Corporation has disclosed the required elements related to its defined benefit pension plan in Note 13 to these consolidated financial statements.

NOTE 2, Restrictions on Cash and Amounts due from Banks

The Bank is required to maintain average balances on hand or with the Federal Reserve Bank. At December 31, 2003 and 2002, these reserve balances amounted to $5,293,004 and $2,210,582, respectively.

NOTE 3, Investment Securities

At December 31, 2003, 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 accretion 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, 2003 and 2002, were:

  Amortized Unrealized Unrealized Market
  Cost Gains Losses Value
  (Dollars in Thousands)
December 31, 2003        
United States Treasury securities $     176  $        2  $        --  $     178 
Obligations of other United
 States Government Agencies 11,198  420  (6) 11,612 
Obligations of state and political
 subdivisions 1,015  117  --  1,132 
  $12,389  $     539  $       (6) $12,922 
December 31, 2002
United States Treasury securities $     354  $        8  $        --  $     362 
Obligations of other United
 States Government Agencies 26,047  1,085  --  27,132 
Obligations of state and political
 subdivisions 1,115  122  --  1,237 
  $27,516  $1,215  $        --  $28,731 
 

The amortized cost and fair values of investment securities available-for-sale at December 31, 2003 were:

  Amortized Unrealized Unrealized Market
  Cost Gains Losses Value
  (Dollars in Thousands)
United States Treasury securities $    1,007  $     31  $   --  $    1,038 
Obligations of other United States
 Government agencies 122,243  606  (907) 121,942 
Obligations of state and political
 subdivisions 43,293  2,673  (25) 45,941 
Money market investment 896    --  896 
Federal Home Loan Bank Stock 2,500  --  --  2,500 
Federal Reserve Bank stock 169  --  --  169 
Other marketable equity securities 293  107  (27) 373 
Total $170,401  $3,417  $(959) $172,859 
 

The amortized cost and fair values of investment securities available-for-sale at December 31, 2002 were:

  Amortized Unrealized Unrealized Market
  Cost Gains Losses Value
  (Dollars in Thousands)
United States Treasury securities $    6,015  $     77  $   (3) $    6,089 
Obligations of other United States
 Government agencies 67,571  780  --  68,351 
Obligations of state and political
 subdivisions 48,170  2,808  (8) 50,970 
Money market investment 1,044    --  1,044 
Federal Home Loan Bank Stock 1,750  --  --  1,750 
Federal Reserve Bank stock 169  --  --  169 
Other marketable equity securities 150  --  (35) 115 
Total $124,869  $3,665  $(46) $128,488 
 

NOTE 3, Investment Securities (Continued)

Investment securities carried at $93.5 million and $55.8 million at December 31, 2003 and 2002, respectively, were pledged to secure public deposits and securities sold under agreements to repurchase, Federal Home Loan Bank advances and for other purposes required or permitted by law. The Federal Home Loan Bank (FHLB) stock and the Federal Reserve Bank (FRB) stock are stated at cost as these are restricted securities without readily determinable fair values.

The amortized cost and approximate market values of investment securities at December 31, 2003 by contractual maturity are shown below.

   December 31, 2003
   Available-For-Sale Held-To-Maturity
   Amortized Market Amortized Market
   Cost Value Cost Value
   (Dollars in Thousands)
 
Due in one year or less $    4,791  $    4,809  $  4,016  $  4,079 
Due after one year through five years 113,387  114,846  7,358  7,711 
Due after five years through ten years 41,130  41,633  1,015  1,132 
Due after ten years 7,285  7,722  --  -- 
  Total debt securities 166,593  169,010  12,389  12,922 
Other securities without stated maturities 3,808  3,849  --  -- 
Total investment securities $170,401  $172,859  $12,389  $12,922 
 

The proceeds from the sale of available-for-sale (AFS) investment securities, and the related realized gains and losses are shown below:

  2003 2002 2001
  (Dollars in Thousands)
 
Proceeds from sales of AFS investments $  147  $ 1,350  $ 6,923 
 
Net gains (losses) ----  ----  ---- 

NOTE 4, Loans

Loans at December 31, were reduced by deferred loan fees in excess of deferred loan cost of $60 thousand in 2003 and $19 thousand in 2002. At December 31, loans before allowance for loan losses consisted of:

  2003 2002
  (Dollars in Thousands)
 
               Commercial and other $  53,711  $  52,183 
               Real estate - construction 32,844  29,822 
               Real estate - mortgage 241,868  204,946 
               Installment loans to individuals 73,844  88,044 
               Tax exempt loans 2,844  2,966 
                  Total $405,111  $377,961 
 
Information concerning loans which are contractually past due or in non-accrual status is as follows:
 
    2003 2002
    (Dollars in Thousands)
 
  Contractually past due loans -    
    past due 90 days or more and
    still accruing interest $736  $608 
 
  Loans which are in
    non-accrual status $243  $314 

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 $6.9 million and $2.3 million at December 31, 2003 and 2002, 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, 2003. Changes to the outstanding loan balances are as follows:

  2003 2002
  (Dollars in Thousands)
 
               Balance, beginning of year $  2,302  $  1,803 
               Additions 5,705  1,057 
               Reductions (1,092) (558)
                   Balance, end of year $6,915  $2,302 

At December 31, 2003 and 2002, impaired loans amounted to $2.9 million and $2.0 million, respectively. Included in the allowance for loan losses was $1.3 million related to $2.9 million of impaired loans at December 31, 2003 and $783 thousand related to $2.0 million of impaired loans at December 31, 2002. For the years ended December 31, 2003 and 2002, the average recorded investment in impaired loans was $2.1 million and $1.8 million, respectively; and $174 thousand and $137 thousand, respectively, of interest income was recognized on loans while they were impaired.

NOTE 5, Allowance for Loan Losses

Changes in the allowance for loan losses are as follows:

  2003 2002 2001
  (Dollars in Thousands)
 
               Balance, beginning of year $ 4,565  $ 3,894  $ 3,649 
               Recoveries 462  383  504 
               Provision for loan losses 1,000  1,700  1,200 
               Loans charged off (1,195) (1,412) (1,459)
                  Balance, end of year $ 4,832  $ 4,565  $ 3,894 

NOTE 6, Premises and Equipment

At December 31, premises and equipment consisted of:

  2003 2002
  (Dollars in Thousands)
  Land $  3,432  $  3,432 
  Buildings 12,348  10,992 
  Leasehold improvements 951  951 
  Furniture, fixtures and equipment 10,372  9,781 
     Total cost 27,103  25,156 
  Less accumulated
    depreciation and amortization 12,940  11,876 
     Net book value $14,163  $13,280 

NOTE 7, Other Real Estate Owned

Other real estate consisted of the following at December 31:

  2003 2002
  (Dollars in Thousands)
  Foreclosed real estate $   --  $  665 
  Property held for sale 165  165 
    Total 165  165 

NOTE 8, Certificates of Deposit

The aggregate amount of certificates of deposits in denominations of $100,000 or more at December 31, 2003 and 2002 was $54,139,000 and $53,445,000 respectively.

At December 31, 2003, the scheduled maturities of certificates of deposits are as follows:

Year (Dollars in Thousands)
 
2004 $118,113 
2005 40,941 
2006 9,484 
2007 11,562 
Thereafter 16,553 
  $196,653 

NOTE 9, Indebtedness

The Bank’s short-term borrowings include federal funds purchased, securities sold under repurchase agreements (including $1.4 million and $1.1 million to directors in 2003 and 2002, respectively) 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.

The Bank’s fixed-rate, long-term debt of $50 million at December 31, 2003 matures through 2013. At December 31, 2003 and 2002 the interest rates ranged from 1.33 percent to 6.60 percent and from 3.33 percent to 6.60 percent respectively. At December 31, 2003 and 2002 the weighted average interest rate was 4.27 percent and 5.39 percent respectively.

NOTE 10, Stock Option Plan

The Company has stock option plans which reserve 262,992 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 stock options is presented below:

Outstanding Granted Exercised Expired Outstanding
Beginning During During During At End
of Year the Year the Year the Year of Year
2001          
Shares 272,826  102,366  (7,920) (3,750) 363,522 
Weighted average exercisable price $17.21  $16.13  $12.34  $16.13  $17.03 
 
2002
Shares 363,522  --  (47,782) (3,000) 312,740 
Weighted average exercisable price $17.03  $      --  $12.96  $14.20  $17.68 
 
2003
Shares 312,740  --  (45,248) (4,500) 262,992 
Weighted average exercisable price $17.68  $      --  $14.03  $27.91  $18.13 

At December 31, 2003, exercise prices on outstanding options ranged from $12.08 to $27.91 per share and the weighted average remaining contractual life was 5.38 years.

NOTE 10, 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. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

Year Ended December 31
2003 2002 2001
(Dollars in Thousands except per share data)
Net income, as reported $     7,825  $      7,051  $      5,710 
Deduct: Total stock-based employee
   compensation expense determined under
   fair value based method for all awards,
   net of related tax effects --  (272) (200)
Pro forma net income $     7,825  $      6,779  $      5,510 
 
Earnings per share:
   Basic - as reported $1.98  $1.80  $1.47 
   Basic - pro forma N/A  $1.73  $1.41 
   Diluted - as reported $1.92  1.77  $1.46 
   Diluted - pro forma N/A  $1.70  $1.41 

Pro-forma amounts in 2002 and 2001 were computed using a 6% risk free interest rate over a 10 year term using an annual dividend rate of between 2.26% and 3.15 % and a .01% volatility rate. The pro-forma amount was not computed in 2003 because no options were issued.

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 79,000 in 2002 and 18,000 in 2001 .

In 2001, the Company had an Employee Stock Purchase Plan which reserved 44,970 shares of common stock for eligible employees. The purchase price was 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 2001, 9,037 shares of common stock were purchased by employees.

NOTE 11, Income Taxes

The components of income tax expense are as follows:

2003 2002 2001
(Dollars in Thousands)
Currently payable $2,534  $2,515  $1,776 
Deferred 37  (259) (42)
Reported tax expense $2,571  $2,256  $1,734 
 

The items that caused timing differences affecting deferred income taxes are as follows:

2003 2002 2001
(Dollars in Thousands)
Provision for loan losses $(165) $(278) $(108)
Pension plan expenses 166  (21) (5)
Deferred loan fees, net (1) 12  10 
Security gains and losses (19) 5  (32)
Interest on certain non-accrual loans 7  3  57 
Depreciation 52  23  36 
Foreclosed assets (2) (3) -- 
Other (1) --  -- 
Total $    37  $(259) $    (42)

A reconciliation of the “expected” Federal income tax expense on income before income taxes with the reported income tax expense follows:

2003 2002 2001
(Dollars in Thousands)
Expected tax expense (34%) $ 3,530  $ 3,165  $ 2,531 
Interest expense on tax exempt assets 52  76  118 
Tax exempt interest (785) (840) (912)
Disqualified incentive stock options (85) (40) -- 
Officer life (146) (114) (7)
Other, net 5  9  4 
Reported tax expense $ 2,571  $ 2,256  $ 1,734 

NOTE 11, Income Taxes (Continued)

The components of the net deferred tax asset included in other assets are as follows at December 31:

  2003 2002
  (Dollars in Thousands)
Components of Deferred Tax Liability:    
  Depreciation $  (382) $  (331)
  Accretion of discounts on securities
  (6) (24)
  Net unrealized (gain) on
   available-for-sale securities (835) (1,231)
  Deferred loan fees and costs (152) (153)
  Pension (251) (85)
    Deferred tax liability (1,626) (1,824)
 
Components of Deferred Tax Asset:
  Allowance for loan losses 1,544  1,379 
  Net unrealized loss on
  available-for-sale securities --  -- 
  Net unrealized loss on
  pension liability 459  -- 
 Interest on non-accrual loans 43  50 
Foreclosed assets 69  67 
Capital loss carry forward 42  42 
Trust organizational cost 13  13 
   Deferred tax asset (liability), net $    544  $  (273)

NOTE 12, 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, 2003, under noncancellable leases is $1.5 million which is due as follows:

Year (Dollars in Thousands)
2004 $307 
2005 254 
2006 255 
2007 256 
2008 153 
Remaining term of leases 291 
Total $1,516 

The aggregate rental expense of premises and equipment was $317 thousand, $296 thousand and $287 thousand for 2003, 2002 and 2001 respectively.

NOTE 13, Pension Plan

The Corporation provides pension benefits for eligible employees through a defined benefit pension plan. Substantially all employees participate in the retirement plan on a non-contributing basis, and are fully vested after 25 years of service. Information pertaining to the activity in the plan, using a measurement date of December 31, is as follows:

  Years ended December 31
  2003   2002  
  (Dollars in Thousands)
Change in benefit obligation
Benefit obligation at beginning of year $ 4,562  $ 3,737 
Service cost 322  257 
Interest cost 282  260 
Benefits paid (259) (309)
Actuarial change (20) 617 
Benefit obligation at end of year $ 4,887  $ 4,562 
 
Change in plan assets
Fair value of plan assets at beginning of year $ 2,462  $ 2,542 
Actual return on plan assets 311  (126)
Employer contribution 1,073  355 
Benefits paid (259) (309)
Fair value of plan assets at end of year $ 3,587  $ 2,462 
 
Funded Status $(1,300) $(2,100)
Unrecognized prior service cost 6  9 
Unrecognized actuarial gain (loss) 2,032  2,340 
Prepaid pension cost recognized $    738  $    249 
 
Accumulated benefit obligation $ 3,813  $ 3,563 
 
Assumptions used to determine the benefit
 obligations at December 31 2003 2002
 
Discount rate 6.50% 6.50%
Rate of compensation increase 4.50% 4.50%
 
Amounts recognized in the statement of
 financial position at December 31
Prepaid benefit cost $    738  $    249 
Accrued benefit liability (1,349) (736)
Intangible asset 9  16 
Accumulated other comprehensive income 1,340  720 
  $   738  $   249 
 
Components of net periodic pension cost Years ended December 31
  2003 2002 2001
  (Dollars in Thousands)
Service Cost $ 322  $ 257  $ 214 
Interest cost 282  260  240 
Expected return on plan assets (179) (201) (203)
Amortization of prior service cost 2  7  7 
Amortization of transition obligation --  --  (12)
Amortization of unrecognized loss 157  93  55 
Net periodic benefit cost $ 584  $ 416  $ 301 

NOTE 13, Pension Plan (continued)

  Assumptions used to determine net periodic Years ended December 31
   pension cost 2003   2002  
  Discount rate 6.50% 6.50%
  Expected long-term rate of return on plan assets 8.00% 8.00%
  Annual salary increase 4.50% 4.50%
 
  The overall expected long-term rate of return on plan assets was determined based on the current asset allocation and the related volatility of those investments.

  Weighted average asset allocations at Percentage
  December 31 of Plan Assets
    2003   2002  
  Cash and cash equivalents 7.00% 10.00%
  Government agencies 14.00% 4.00%
  Corporate debt and equity 78.00% 85.00%
  Accrued income 1.00% 1.00%
    100.00% 100.00%
 
  The pension invests in large and mid-cap equities and government and corporate bonds, with the following target allocations: equities 55%, fixed income 40% and cash 5%. The pension does not invest in options or derivatives.

  The Company expects to contribute $999 thousand to its pension plan in 2004.

  Estimated future benefit payments, which reflect expected future service, as appropriate,
are as follows:

  (Dollars in Thousands)
    2004 $   138
  2005 $   127
  2006 $   195
  2007 $   239
    2008 $   114
    Years 2009 - 2013 $1,932
 

NOTE 14, 401(k) Plan

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 up to 3%. Expenses related to the plan totaled $382 thousand, $392 thousand and $350 thousand in 2003, 2002 and 2001, respectively.

NOTE 15, 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 lines 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:

2003   2002  
(Dollars in Thousands)  
Commitments to extend credit:
Home equity lines of credit $16,340  $14,321 
Construction and development
 loans committed but not funded 57,027  25,894 
 Other lines of credit
  (principally commercial) 36,178  27,987 
Total $109,545  $68,202 
 
Irrevocable letters of credit $    1,625  $  1,031 

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 2005. 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.

NOTE 16, Fair Value of Financial Instruments

The estimated fair value of the Bank’s financial instruments at December 31 are as follows:

  2003 2002
  Carrying Fair Carrying Fair
  Amount Value Amount Value
  (Dollars in Thousands) (Dollars in Thousands)
 
Cash and due from banks $  18,384  $  18,384  $  14,437  $  14,437 
Investment securities, held-to-maturity 12,389  12,922  27,516  28,730 
Investment securities, available-for-sale 172,859  172,859  128,488  128,488 
Federal funds sold 14,969  14,969  8,710  8,710 
Loans, net of allowances for loan losses 400,279  401,546  373,396  375,813 
 
Deposits:
Non-interest bearing deposits 114,101  114,101  90,621  90,621 
Savings deposits 179,668  179,668  159,077  159,077 
Certificates of Deposit 196,654  198,520  204,354  207,015 
 
Securities sold under repurchase
 agreement and federal funds purchased 38,007  38,007  21,283  21,283 
 
Federal Home Loan Bank advances 50,000  53,705  35,000  39,193 
 
Interest bearing U.S. Treasury demand
 notes and other liabilities
 for borrowed money 1,811 1,811 6,000 6,000
 
Commitments to extend credit 109,545  109,545  68,202  68,202 
 
Irrevocable letters of credit 1,625 1,625 1,031 1,031
 

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 from 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.

Federal Home Loan Bank advances are presented at estimated fair value using rates currently offered for advances of similar remaining maturities.

NOTE 17, 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, 2003, 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 14.15% and 15.26%. The Company’s leverage ratio at December 31, 2003 was 9.81%.

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 2004, without approval of the Comptroller of the Currency, $10.6 million plus an additional amount equal to the Bank’s retained net profits for 2004 up to the date of any dividend declaration.

OLD POINT FINANCIAL CORPORATION
PARENT ONLY BALANCE SHEETS

As of December 31, 2003  2002 
  (Dollars in thousands)      
ASSETS    
Cash in bank $       635  $      248 
Investment securities 2,284  2,215 
Total Loans -  - 
Investment in subsidiary 60,390  55,637 
Other real estate owned -  - 
Other assets (10) 16 
  $ 63,299  $ 58,116 
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable - bank $         --  $         -- 
Other liabilities -  - 
  Total liabilities -  - 
 
Stockholders' equity 63,299  58,116 
  $ 63,299  $ 58,116 

OLD POINT FINANCIAL CORPORATION
PARENT ONLY

INCOME STATEMENTS

For the year ended December 31, 2003   2002   2001  
  (Dollars in thousands)
INCOME      
Cash dividends from subsidiary $ 2,200  $ 1,850  $ 1,700 
Interest and Fees on Loans --  --  -- 
Interest income from
  investment securities 104  98  113 
Securities gains (losses) --  --  -- 
Other income 144  144  144 
   Total income 2,448  2,092  1,957 
 
EXPENSES
Interest on borrowed money --  --  -- 
Other expenses 437  397  373 
   Total expenses 437  397  373 
 
Income before taxes and undistributed
  net income of subsidiary 2,011  1,695  1,584 
Income tax (87) (77) (66)
Net income before undistributed
  net income of subsidiary 2,098  1,772  1,650 
Undistributed net income of subsidiary 5,727  5,279  4,060 
   Net income $ 7,825  >$ 7,051  $ 5,710 

OLD POINT FINANCIAL CORPORATION
PARENT ONLY

STATEMENT OF CASH FLOWS

For the year ending December 31, 2003  2002  2001 
  (Dollars in thousands)
 
CASH FLOWS FROM OPERATING ACTIVITIES      
Net income (Loss) $ 7,825  $ 7,051  $ 5,710 
Adjustments to Reconcile Net Income to Net Cash Provided by
 operating activities:
Equity in undistributed (earnings) losses of subsidiaries (5,727) (5,279) (4,060)
(Gain) or Loss on sales of assets --  --  -- 
Increase (decrease) in other assets 2  (2) -- 
Increase (decrease) in other liabilities (162) --  -- 
  Net cash provided (used) by operating activities 1,938  1,770  1,650 
 
CASH FLOWS FROM INVESTING ACTIVITIES
Maturity/call of investment securities 100  1,100  90 
Purchases of investment securities (100) (2,100) -- 
Payments for investments in and advances to subsidiaries 162  600  (235)
Sale or repayment of investments in and advances to subsidiaries --  --  -- 
(Purchase)/Sale of Premises and Equipment --  --  -- 
Loans to customers --  --  -- 
Net cash provided (used) by investing activities 162  (400) (145)
 
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in borrowed money --  --  -- 
Proceeds from issuance of common stock 427  378  154 
Dividends paid (2,140) (1,776) (1,608)
Other, net --  --  -- 
Net cash provided (used) by financing activities (1,713) (1,398) (1,454)
 
Net increase in cash and due from banks 387  (28) 51 
Cash and due from banks at beginning of period 248  276  225 
Cash and due from banks at end of period $    635  $    248  $    276 

Accounting Rule Changes

None.

Regulatory Requirements and Restrictions

For the reserve maintenance period in effect at December 31, 2002, 2001 and 2000 the bank was required to maintain with the Federal Reserve Bank of Richmond an average daily balance totaling approximately $ 5.2 million, $2.3 million and $581 thousand respectively.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon the evaluation, they concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in this report. There have been no significant changes in the Company’s internal controls or factors that could significantly affect internal controls subsequent to the date of the evaluation.

The Company’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and fraud. A control system, no matter how well conceived and operated, provides reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system reflects resource constraints and the benefits of controls must be considered relative to their costs. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been or will be detected. These inherent limitations include the realities that judgements in decision-making can be faulty and that breakdowns occur because of simple error or mistake. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all future conditions; over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART III

Item 10. Directors and Executive Officers of the Registrant

The information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the 2004 Proxy Statement is incorporated herein by reference.

The Board of Directors of the Company has determined that Mr. Russell Smith Evans, Jr., a director and member of the Audit Committee, qualifies as an “Audit Committee Financial Expert” as defined in rules adopted by the Security and Exchange Commission pursuant to the Sarbanes-Oxley Act of 2002.

The Board of Directors of the Company has adopted an Insider Policy: Conflict of Interest/Code of Ethics which details principles and responsibilities governing ethical conduct for all Company directors, officers, employees and principal shareholders. The Insider Policy: Conflict of Interest/Cod eof Ethics is filed as an Exhibit to this Report on Form 10-K.

Item 11. Executive Compensation

The information set forth under the caption “Executive Compensation” in the 2004 Proxy Statement is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and RelatedShareholder
Matters

The information set forth under the caption “Securities Authorized for Issuance Under Equity Compensation Plans” in the 2004 Proxy Statement is incorporated herein by reference.

The information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the 2004 Proxy Statement is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

The information set forth under the caption “Interest of Management in Certain Transactions” in the 2004 Proxy Statement is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The information set forth under the caption “Principal Accounting Fees” in the 2004 Proxy Statement is incorporated herein by reference.

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)(1)     Financial Statements:

  The following audited financial statements are included in Part II, Item 8, of this Annual Report on Form 10K.

  Consolidated Balance Sheets - December 31, 2003 and 2002
  Consolidated Statements of Income
  Years Ended December 31, 2003, 2002 and 2001
  Consolidated Statements of Changes in Stockholders' Equity
  Years Ended December 31, 2003, 2002 and 2001
  Consolidated Statements of Cash Flows
  Years Ended December 31, 2003, 2002 and 2001
  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 Security Maturities and 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 $100,000 and more Part I, Item 1
Return on Average Equity Part I, Item 1
Short Term Borrowings 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
Contractual Obligations Part ii, Item 7
Investment Securities Part II, Item 8
Proceeds from sales and maturities of securities Part II, Item 8
Premises and Equipment Part II, Item 8
Other Real Estate Owned 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
Lease Commitments 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

(a)(3)    Exhibits:

2  Not Applicable
3  Articles of Incorporation and Bylaws
4  Not Applicable
9  Not Applicable
10  Not Applicable
11  Not Applicable
12  Not Applicable
13  Not Applicable
14  Code of Ethics
16  Not Applicable
18  Not Applicable
21  Subsidiaries of the Registrant
22  Not Applicable
23  Consent of Independent Certified Public Accountants
24  Powers of Attorney
31  Rule 13a-14(a)/15d-14(a) Certifications
32  Section 1350 Certifications

(b) Reports on Form 8-K:

A Current Report, Form 8-K was filed on October 16, 2003 to furnish under Item 12, the Company’s third quarter earnings.

INDEX OF EXHIBITS

      Exhibit No.

2  Not Applicable
3  Articles of Incorporation and Bylaws
(incorporated by reference from our Annual Report on Form 10-K for
the year ended 1998 (File No.000-12896))
4  Not Applicable
9  Not Applicable
10  Not Applicable
11  Not Applicable
12  Not Applicable
13  Not Applicable
14  Code of Ethics
16  Not Applicable
18  Not Applicable
21  Subsidiaries of the Registrant
22  Not Applicable
23  Consent of Independent Certified
Public Accountants
24  Powers of Attorney
31  Rule 13a-14(a)/15d-14(a) Certifications
32  Certification of Chief Financial Officer

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 29th day of March, 2004.

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 29th day of March, 2004.

/s/Robert F. Shuford President and Director
Robert F. Shuford Principal Executive Officer
 
/s/Laurie D. Grabow Executive Vice President
Laurie D. Grabow Principal Financial and Accounting Officer
 
/s/James Reade Chisman Director
James Reade Chisman
 
/s/Richard F. Clark Director
Richard F. Clark
 
/s/Russell S. Evans, Jr. Director
Russell S. Evans, Jr.
 
/s/G. Royden Goodson, III Director
G. Royden Goodson, III
 
/s/Dr. Arthur D. Greene Director
Dr. Arthur D. Greene
 
/s/Gerald E. Hansen Director
Gerald E. Hansen
 
/s/Stephen D. Harris Director
Stephen D. Harris
 
/s/John Cabot Ishon Director
John Cabot Ishon
 
/s/Eugene M. Jordan Director
Eugene M. Jordan
 
/s/Louis G. Morris Director
Louis G. Morris
 
/s/John B. MorganII Director
John B. Morgan II
 
/s/Dr. H. Robert Schappert Director
Dr. H. Robert Schappert
 
/s/Melvin R. Zimm Director
Melvin R. Zimm