Old Point Financial (OPOF) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents the Company's unaudited consolidated financial statements, including balance sheets, statements of income, comprehensive income, changes in stockholders' equity, and cash flows, along with detailed notes Consolidated Balance Sheets - Total assets decreased by $48.0 million (3.3%) from $1,450,570 thousand at December 31, 2024, to $1,402,527 thousand at June 30, 2025[12] - Total liabilities decreased by $52.2 million (3.9%) from $1,336,600 thousand at December 31, 2024, to $1,284,391 thousand at June 30, 2025[12] - Total stockholders' equity increased by $4.2 million (3.7%) from $113,970 thousand at December 31, 2024, to $118,136 thousand at June 30, 2025[12] Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :------------------ | | Cash and cash equivalents | $100,678 | $140,044 | | Securities available-for-sale | $214,377 | $218,083 | | Loans, net | $994,334 | $998,713 | | Total assets | $1,402,527 | $1,450,570 | | Total deposits | $1,208,701 | $1,254,914 | | Total liabilities | $1,284,391 | $1,336,600 | | Total stockholders' equity | $118,136 | $113,970 | Consolidated Statements of Income - Net income for the three months ended June 30, 2025, decreased by 50.9% to $1,242 thousand from $2,529 thousand in the prior year quarter[15] - Net income for the six months ended June 30, 2025, decreased by 19.9% to $3,400 thousand from $4,246 thousand in the prior year period[15] - Provision for credit losses significantly increased by 247.5% to $1,185 thousand for the six months ended June 30, 2025, compared to $341 thousand in the prior year[15] Consolidated Statements of Income Highlights (in thousands, except per share amounts) | Metric | Q2 2025 | Q2 2024 | Change ($) | Change (%) | H1 2025 | H1 2024 | Change ($) | Change (%) | | :-------------------------------- | :------ | :------ | :--------- | :--------- | :------ | :------ | :--------- | :--------- | | Total interest and dividend income | $17,574 | $18,118 | $(544) | (3.0%) | $34,877 | $35,501 | $(624) | (1.8%) | | Total interest expense | $5,395 | $6,002 | $(607) | (10.1%) | $10,690 | $11,845 | $(1,155) | (9.8%) | | Net interest income | $12,179 | $12,116 | $63 | 0.5% | $24,187 | $23,656 | $531 | 2.2% | | Provision for credit losses | $468 | $261 | $207 | 79.3% | $1,185 | $341 | $844 | 247.5% | | Total noninterest income | $3,249 | $3,471 | $(222) | (6.4%) | $7,096 | $6,693 | $403 | 6.0% | | Total noninterest expense | $13,364 | $12,324 | $1,040 | 8.4% | $25,811 | $25,027 | $784 | 3.1% | | Net income | $1,242 | $2,529 | $(1,287) | (50.9%) | $3,400 | $4,246 | $(846) | (19.9%) | | Basic EPS | $0.24 | $0.50 | $(0.26) | (52.0%) | $0.67 | $0.84 | $(0.17) | (20.2%) | Consolidated Statements of Comprehensive Income - Comprehensive income for the three months ended June 30, 2025, decreased by 48.8% to $1,551 thousand from $3,029 thousand in the prior year quarter[17] - Comprehensive income for the six months ended June 30, 2025, increased by 20.0% to $5,373 thousand from $4,478 thousand in the prior year period, primarily due to a significant increase in net unrealized gain on available-for-sale securities[17] Consolidated Statements of Comprehensive Income Highlights (in thousands) | Metric | Q2 2025 | Q2 2024 | Change ($) | Change (%) | H1 2025 | H1 2024 | Change ($) | Change (%) | | :-------------------------------- | :------ | :------ | :--------- | :--------- | :------ | :------ | :--------- | :--------- | | Net income | $1,242 | $2,529 | $(1,287) | (50.9%) | $3,400 | $4,246 | $(846) | (19.9%) | | Net unrealized gain on AFS securities | $309 | $500 | $(191) | (38.2%) | $1,834 | $232 | $1,602 | 690.5% | | Comprehensive income | $1,551 | $3,029 | $(1,478) | (48.8%) | $5,373 | $4,478 | $895 | 20.0% | Consolidated Statements of Changes in Stockholders' Equity - Total stockholders' equity increased from $113,970 thousand at December 31, 2024, to $118,136 thousand at June 30, 2025[19] - The increase was primarily driven by net income of $3,400 thousand and other comprehensive income of $1,973 thousand for the six months ended June 30, 2025, partially offset by cash dividends of $1,429 thousand[19] - Cash dividends remained constant at $0.14 per share for both Q2 2025 and Q2 2024, and $0.28 per share for both H1 2025 and H1 2024[19] Changes in Stockholders' Equity (Six Months Ended June 30, in thousands) | Metric | H1 2025 | H1 2024 | | :-------------------------------- | :------ | :------ | | Balance at December 31 | $113,970 | $106,778 | | Net income | $3,400 | $4,246 | | Other comprehensive income, net of tax | $1,973 | $232 | | Employee Stock Purchase Plan share issuance | $59 | $59 | | Share-based compensation expense | $163 | $205 | | Cash dividends paid | $(1,429) | $(1,416) | | Balance at June 30 | $118,136 | $109,996 | Consolidated Statements of Cash Flows - Net cash provided by operating activities decreased by 19.2% to $3,829 thousand in H1 2025 from $4,736 thousand in H1 2024[21] - Net cash provided by investing activities significantly decreased by 75.7% to $8,078 thousand in H1 2025 from $33,248 thousand in H1 2024, primarily due to purchases of available-for-sale securities and lower net decrease in loans held for investment[21] - Net cash used in financing activities increased by 96.9% to $51,273 thousand in H1 2025 from $26,045 thousand in H1 2024, mainly due to a large decrease in time deposits and repayment of subordinated debt[21] Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Metric | H1 2025 | H1 2024 | Change ($) | Change (%) | | :-------------------------------- | :------ | :------ | :--------- | :--------- | | Net cash provided by operating activities | $3,829 | $4,736 | $(907) | (19.2%) | | Net cash provided by investing activities | $8,078 | $33,248 | $(25,170) | (75.7%) | | Net cash used in financing activities | $(51,273) | $(26,045) | $(25,228) | 96.9% | | Net (decrease) increase in cash and cash equivalents | $(39,366) | $11,939 | $(51,305) | (430.0%) | | Cash and cash equivalents at end of period | $100,678 | $92,745 | $7,933 | 8.6% | Notes to Consolidated Financial Statements Note 1. Description of Business and Summary of Significant Accounting Policies This note describes the Company's business operations, outlines the proposed merger with TowneBank, and mentions recent accounting pronouncements not expected to materially impact financial statements - Old Point Financial Corporation operates through The Old Point National Bank of Phoebus (Bank) and Old Point Trust & Financial Services, N.A. (Wealth), providing deposit, loan, and wealth management services primarily in the Hampton Roads region of Virginia[22] - On April 2, 2025, the Company entered into a Merger Agreement with TowneBank, which has been approved by shareholders and is subject to regulatory approvals and other customary closing conditions[28][29][31] - Each share of Company common stock will convert into either $41.00 cash or 1.14 shares of TowneBank common stock, subject to a proration mechanism ensuring 50-60% stock consideration[30] - The Company does not expect the adoption of ASU 2023-09 (Income Tax Disclosures) and ASU 2024-03 (Expense Disaggregation Disclosures) to have a material effect on its consolidated financial statements[32][33][34] Note 2. Securities This note details the Company's securities portfolio, showing a decrease in fair value and significant unrealized losses, for which no Allowance for Credit Losses (ACL) was recognized - The fair value of securities available-for-sale decreased from $218,083 thousand at December 31, 2024, to $214,377 thousand at June 30, 2025[36] - Gross unrealized losses on available-for-sale securities totaled $19,427 thousand at June 30, 2025, with the largest portions in obligations of state and political subdivisions ($7,792 thousand) and mortgage-backed securities ($8,518 thousand)[36] - The Company concluded no ACL should be recognized for unrealized losses, citing that changes in fair value were primarily due to interest rate fluctuations, securities had high credit quality, and there is an intent to hold these investments to maturity[39] - A net realized loss of $176 thousand on the sale of available-for-sale securities was recorded for the six months ended June 30, 2025[39] Note 3. Loans and the Allowance for Credit Losses on Loans This note details a slight decrease in the total loan portfolio, an increase in the Allowance for Credit Losses on Loans (ACLL), and a significant rise in the provision for credit losses - Total loans, net of deferred fees, decreased from $1,010,160 thousand at December 31, 2024, to $1,006,275 thousand at June 30, 2025[41] - The Allowance for Credit Losses on Loans (ACLL) increased from $11,447 thousand at December 31, 2024, to $11,941 thousand at June 30, 2025[41][56] - The provision for credit losses for the six months ended June 30, 2025, was $1,185 thousand, a significant increase from $341 thousand in the prior year, driven by an increase in specific reserve for one commercial real estate relationship, net charge-offs, and economic uncertainty[59][173] Age Analysis of Past Due Loans (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | 30 - 59 Days Past Due Accruing | $3,049 | $4,848 | | 60 - 89 Days Past Due | $1,219 | $1,381 | | 90 or More Days Past Due and still Accruing | $932 | $641 | | Nonaccrual | $43 | $82 | | Total Past Due & Nonaccrual | $5,243 | $6,952 | Note 4. Leases This note outlines the Company's operating lease agreements, showing a decrease in both lease liabilities and right-of-use assets, along with a reduction in total operating lease costs - Lease liabilities decreased from $840 thousand at December 31, 2024, to $660 thousand at June 30, 2025[70] - Right-of-use assets decreased from $793 thousand at December 31, 2024, to $630 thousand at June 30, 2025[70] - The weighted average remaining lease term was 2.25 years at June 30, 2025 (down from 2.63 years), and the weighted average discount rate was 3.44% (up from 3.27%)[70] - Total operating lease cost for the six months ended June 30, 2025, was $196 thousand, down from $312 thousand in the prior year period[70] Note 5. Low-Income Housing Tax Credits This note details the Company's investments in low-income housing equity funds, which decreased in value, and highlights the adoption of a new accounting standard - The Company was invested in four housing equity funds, with investments totaling $571 thousand at June 30, 2025, a decrease from $686 thousand at December 31, 2024[71][72] - In 2024, the Company adopted ASU 2023-02, which allows reporting entities to elect the proportional amortization method for accounting for qualifying tax equity investments[73] Note 6. Borrowings This note provides an overview of the Company's borrowing activities, including a decrease in short-term borrowings and the redemption of subordinated notes, resulting in a realized gain - Total short-term borrowings decreased from $3,967 thousand at December 31, 2024, to $3,371 thousand at June 30, 2025[77] - The Company had $65.0 million in federal funds lines and $433.3 million in FHLB collateral-dependent lines available at June 30, 2025[75] - In the first quarter of 2025, $3.7 million of subordinated notes were redeemed and retired, resulting in a realized gain of $656 thousand[79] Note 7. Commitments and Contingencies This note details the Company's off-balance-sheet credit-related financial instruments, showing a slight decrease in both commitments to extend credit and letters of credit - Total commitments to extend credit decreased from $187,073 thousand at December 31, 2024, to $184,811 thousand at June 30, 2025[81] - Total letters of credit decreased from $2,763 thousand at December 31, 2024, to $2,599 thousand at June 30, 2025[81] Note 8. Share-Based Compensation This note describes the Company's share-based compensation plans, highlighting the discontinuation of ESPP purchases due to the merger and reporting the stock-based compensation expense - 1,786 shares were purchased under the Employee Stock Purchase Plan (ESPP) during the six months ended June 30, 2025; however, ESPP purchases were discontinued in the second quarter of 2025 due to the Merger Agreement[84] - Nonvested restricted stock shares totaled 70,854 at June 30, 2025, with a weighted average grant date fair value of $15.53[86] - Stock-based compensation expense was $163 thousand for the six months ended June 30, 2025, down from $205 thousand in the prior year period[87] Note 9. Stockholders' Equity and Earnings per Common Share This note details the improvement in accumulated other comprehensive income (loss) and explains the calculation of basic and diluted earnings per common share - Accumulated other comprehensive loss (AOCL) improved from $(17,132) thousand at December 31, 2024, to $(15,159) thousand at June 30, 2025, primarily due to net unrealized gains on available-for-sale securities[90] - Basic and diluted EPS are computed by dividing net income by the weighted average number of common shares outstanding, with no antidilutive shares outstanding during the reported periods[92] Note 10. Fair Value Measurements This note explains the Company's fair value measurement methodology, categorizing financial instruments into three levels based on input observability - The Company classifies financial instruments into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[102] - All available-for-sale securities and interest rate swaps are classified as Level 2 fair value measurements[99][101][103] - Collateral dependent loans with an ACL and repossessed assets are measured at fair value on a nonrecurring basis and classified as Level 3[105][109][113] - Repossessed assets increased from $1,972 thousand at December 31, 2024, to $2,354 thousand at June 30, 2025[114] Note 11. Segment Reporting This note provides financial performance details for the Company's three reportable segments, showing varied net income results across the Bank, Wealth, and Parent entities - The Company operates in three principal business segments: The Old Point National Bank of Phoebus (Bank), Old Point Trust & Financial Services, N.A. (Wealth), and the Parent company[122] - For the six months ended June 30, 2025, the Bank's net income decreased to $4,611 thousand from $4,896 thousand in the prior year, and the Parent's net income decreased to $2,743 thousand from $4,246 thousand[127][128] - Wealth's net income for the six months ended June 30, 2025, increased to $341 thousand from $225 thousand in the prior year, driven by higher income from fiduciary activities[127][128] Segment Net Income (Six Months Ended June 30, in thousands) | Segment | H1 2025 | H1 2024 | Change ($) | Change (%) | | :------ | :------ | :------ | :--------- | :--------- | | Bank | $4,611 | $4,896 | $(285) | (5.8%) | | Wealth | $341 | $225 | $116 | 51.6% | | Parent | $2,743 | $4,246 | $(1,503) | (35.4%) | | Eliminations | $(4,295) | $(5,121) | $826 | (16.1%) | | Consolidated Net Income | $3,400 | $4,246 | $(846) | (19.9%) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's comprehensive review of the Company's financial performance, condition, liquidity, and capital resources for the reported periods Overview The overview summarizes the Company's financial performance, noting a significant decrease in net income and profitability ratios, alongside a decline in total assets and deposits - Consolidated net income for Q2 2025 was $1.2 million ($0.24 diluted EPS), a 50.9% decrease from $2.5 million ($0.50 diluted EPS) in Q2 2024[133] - Total assets decreased by $48.0 million (3.3%) to $1.4 billion at June 30, 2025, from December 31, 2024[134] - Return on average equity (ROE) (annualized) was 4.25% in Q2 2025, down from 9.43% in Q2 2024[134] - Net interest margin (NIM) was 3.70% for Q2 2025, an increase from 3.62% for Q2 2024[134] - Non-performing assets (NPAs) increased by $1.4 million to $3.3 million at June 30, 2025, from $2.0 million at June 30, 2024, representing 0.24% of total assets (up from 0.14%)[134] - The proposed merger with TowneBank has been approved by shareholders and is subject to regulatory approvals and customary closing conditions[136][137][139] - Total equity increased by $4.2 million to $118.1 million at June 30, 2025, primarily due to net income and a $2.0 million reduction in unrealized losses on available-for-sale securities[140] Critical Accounting Estimates This section identifies the Allowance for Credit Losses on Loans (ACLL) as a critical accounting estimate, emphasizing the significant judgment required due to inherent uncertainties - The Allowance for Credit Losses on Loans (ACLL) is a material and complex estimate, requiring management's judgment on inherently uncertain internal and external factors[146][147] - The quantitative ACLL estimate is sensitive to changes in economic variables, such as the Virginia and regional unemployment rate, and future changes in these factors could significantly impact the estimate[148] Results of Operations This section analyzes the Company's financial performance, detailing increases in net interest income, a significant rise in the provision for credit losses, and fluctuations in noninterest items Net Interest Income Net interest income increased slightly, driven by higher loan yields and lower deposit costs, despite a decrease in average earning assets, resulting in an improved net interest margin - Net interest income increased by $63 thousand (0.5%) to $12.2 million in Q2 2025 and by $531 thousand (2.2%) to $24.2 million for H1 2025 compared to prior year periods[152] - Net Interest Margin (NIM) was 3.70% in Q2 2025, up from 3.62% in Q2 2024[153] - Average loans decreased by $58.9 million (5.6%) in Q2 2025 and $68.3 million (6.4%) in H1 2025 compared to prior year periods[155] - Average interest-bearing liabilities decreased, with costs decreasing by 25 basis points in Q2 2025 and 20 basis points in H1 2025, respectively[158] Net Interest Income and Rates (Q2 2025 vs. Q2 2024, in thousands) | Metric | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :-------------------------------- | :------ | :------ | :--------- | :--------- | | Total earning assets (Avg Balance) | $1,321,949 | $1,342,747 | $(20,798) | (1.5%) | | Yield on earning assets | 5.34% | 5.42% | (0.08%) | (1.5%) | | Total interest-bearing liabilities (Avg Balance) | $958,043 | $959,521 | $(1,478) | (0.2%) | | Rate on interest-bearing liabilities | 2.26% | 2.51% | (0.25%) | (10.0%) | | Net interest income | $12,216 | $12,153 | $63 | 0.5% | | Net interest margin | 3.71% | 3.63% | 0.08% | 2.2% | Provision for Credit Losses The provision for credit losses increased significantly, driven by specific reserves for a commercial real estate relationship, net charge-offs, and economic uncertainty - Provision for credit losses was $468 thousand in Q2 2025, up 79.3% from Q2 2024, and $1.2 million in H1 2025, up 247.5% from H1 2024[173] - The increase was primarily driven by an increase in the specific reserve for one commercial real estate relationship, net charge-offs, and continued economic uncertainty[173] - Annualized net loans charged off to average loans were 0.13% for Q2 2025, compared to 0.12% for Q2 2024[173] Noninterest Income Total noninterest income decreased in Q2 2025 but increased for H1 2025, primarily benefiting from a gain on the redemption of subordinated notes - Total noninterest income decreased by $222 thousand (6.4%) to $3.2 million in Q2 2025, mainly due to losses on sales of repossessed assets[176] - Total noninterest income increased by $403 thousand (6.0%) to $7.1 million for H1 2025, primarily driven by a $656 thousand gain on the redemption of subordinated notes[176] Noninterest Expense Noninterest expense increased for both the quarter and six-month period, primarily driven by merger-related costs and higher salaries and employee benefits - Total noninterest expense increased by $1.0 million (8.4%) to $13.4 million in Q2 2025, primarily due to increases in merger-related costs and salaries[177] - For H1 2025, noninterest expense increased by $784 thousand (3.1%) over H1 2024, primarily due to increases in merger-related costs[177] Income Tax Expense Income tax expense fluctuated, with the effective federal income tax rate rising significantly due to non-deductible merger-related expenses - Income tax expense decreased by $119 thousand for Q2 2025 compared to Q2 2024, primarily due to a $1.4 million decrease in pre-tax income[178] - Income tax expense increased by $152 thousand for H1 2025 compared to H1 2024, due to changes in pre-tax income and non-deductible merger-related expenses[178] - The effective federal income tax rate increased to 22.2% in Q2 2025 and 20.7% in H1 2025, primarily driven by non-deductible merger-related expenses[178] Discussion and Analysis of Financial Condition This section provides a detailed analysis of the Company's balance sheet, highlighting changes in assets, loans, deposits, capital, and liquidity Total Assets - Total assets decreased by $48.0 million (3.3%) to $1.4 billion at June 30, 2025, compared to $1.45 billion at December 31, 2024[180] Loan Portfolio The net loan portfolio experienced a slight decrease, with shifts in specific loan categories, an increase in nonperforming assets, and a higher Allowance for Credit Losses (ACL) - Net loans held for investment decreased by $4.4 million (0.4%) to $994.3 million at June 30, 2025, from $998.7 million at December 31, 2024[181] - Decreases in commercial and construction loans were partially offset by increases in consumer automobile loans ($9.0 million), multifamily loans ($6.1 million), and equity lines of credit ($6.1 million)[181] - Nonperforming assets (NPAs) totaled $3.3 million at June 30, 2025, up 23.5% from December 31, 2024, with NPAs as a percentage of total assets increasing to 0.24%[198] - Nonaccrual loans decreased to $43 thousand, while loans past due 90 days or more and still accruing interest increased by $291 thousand to $932 thousand[200] - The total Allowance for Credit Losses (ACL) was $12.1 million at June 30, 2025, up from $11.6 million at December 31, 2024, due to a specific reserve increase and economic uncertainty[201] - The Company has enhanced credit administration for two loans secured by office buildings, with one classified as Substandard and the other upgraded to Pass[215][216] Securities Portfolio The securities available-for-sale portfolio decreased slightly, with a strategy focused on managing interest rate risk and providing liquidity - Securities available-for-sale decreased by $3.7 million (1.7%) to $214.4 million at June 30, 2025, from $218.1 million at December 31, 2024[184] - The Company's strategy for the securities portfolio is primarily intended to manage interest rate risk and to provide liquidity to fund loan growth[184] Maturity of Securities (June 30, 2025, in thousands) | Maturity | Total Securities | Weighted Average Yield | | :--------------- | :--------------- | :--------------------- | | 1 year or less | $4,851 | 1.82% | | 1-5 years | $16,245 | 2.78% | | 5-10 years | $54,869 | 3.34% | | Over 10 years | $138,412 | 3.98% | | Total | $214,377 | 3.74% | Deposits Total deposits decreased, driven by declines in noninterest-bearing and time deposits, while the average rate paid on interest-bearing deposits also decreased - Total deposits decreased by $46.2 million (3.7%) to $1.2 billion at June 30, 2025, compared to $1.25 billion at December 31, 2024[182][218] - Noninterest-bearing deposits decreased by $12.5 million (3.5%), and time deposits decreased by $51.2 million (21.3%), partially offset by an increase in savings deposits[182] - The average rate paid on interest-bearing deposits for H1 2025 was 2.11%, down from 2.25% in the prior year period[220] - Estimated uninsured deposits were approximately $211.1 million (17.1% of total deposits) at June 30, 2025, down from $229.8 million (18.3%) at December 31, 2024[221] Maturities of Uninsured Time Deposits (in thousands) | Maturity | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :------------------ | | Within 3 months | $31,586 | $35,212 | | 4 through 6 months | $11,749 | $23,529 | | 7 through 12 months | $15,951 | $4,890 | | Greater than 12 months | $10,850 | $14,661 | | Total | $70,136 | $78,292 | Capital Resources Total stockholders' equity increased, and the Bank maintained strong regulatory capital ratios, significantly exceeding minimum requirements - Total stockholders' equity increased by 3.7% to $118.1 million as of June 30, 2025, driven by net income and a $2.0 million reduction in unrealized losses on securities[225] - The Bank's regulatory capital ratios were all well above the recommended regulatory minimum levels at June 30, 2025[230] - In the first quarter of 2025, $3.7 million of subordinated notes were redeemed and retired, resulting in a realized gain of $656 thousand[232] Bank's Regulatory Capital Ratios (June 30, 2025) | Ratio | Regulatory Minimums | June 30, 2025 | | :----------------------------------- | :------------------ | :-------------- | | Common Equity Tier 1 Capital to RWA | 4.500% | 13.29% | | Tier 1 Capital to Risk-Weighted Assets | 6.000% | 13.29% | | Total Capital to Risk-Weighted Assets | 8.000% | 14.36% | | Tier 1 Leverage to Average Assets | 4.000% | 10.57% | Liquidity The Company maintains sufficient liquidity through its stable deposit base, available borrowing lines, and management of liquid assets - Total funding sources were $673.3 million at June 30, 2025, compared to $766.9 million at December 31, 2024[239] - The Company had $393.2 million in remaining FHLB borrowing availability, $65.0 million in federal funds lines of credit, and $1.2 million from a revolving unsecured line of credit available at June 30, 2025[234] - The liquidity coverage ratio was 795.8% at June 30, 2025, compared to 896.8% at December 31, 2024[239] - Management believes that the Company maintains overall liquidity sufficient to satisfy its depositors' requirements and to meet its customers' future borrowing needs[235][240] Non-GAAP Financial Measures This section provides reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures, used by management to evaluate performance - Management uses non-GAAP measures like fully tax-equivalent net interest income, tangible book value per share, and adjusted operating earnings to supplement the evaluation of performance[243][244] - Fully Taxable Equivalent (FTE) Net Interest Income was $12,216 thousand for Q2 2025 and $24,260 thousand for H1 2025[246] - Tangible Book Value Per Share (non-GAAP) was $22.80 at June 30, 2025, compared to $21.31 at June 30, 2024[246] - Adjusted Operating Earnings (non-GAAP) were $2,178 thousand for Q2 2025 and $4,207 thousand for H1 2025[246] Selected Non-GAAP Financial Measures (Q2 2025 vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | | :-------------------------------- | :------ | :------ | | Net interest margin (FTE) (non-GAAP) | 3.71% | 3.63% | | Adjusted return on average assets (non-GAAP) | 0.61% | 0.71% | | Adjusted return on average equity (non-GAAP) | 7.46% | 9.43% | | Adjusted efficiency ratio (non-GAAP) | 80.36% | 78.88% | Cautionary Statement Regarding Forward-Looking Statements This section warns readers that the report contains forward-looking statements, which are subject to significant risks and uncertainties, and that actual results may differ materially - Statements using terms like 'believes,' 'expects,' 'plans,' 'may,' 'will,' 'should,' 'projects,' 'contemplates,' 'anticipates,' 'forecasts,' 'intends' are forward-looking and inherently uncertain[247] - Significant risks and uncertainties include the proposed merger, changes in interest rates, economic conditions, and asset quality[248] - The Company does not intend or assume any obligation to update any forward-looking statements, except as required by law[249] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section addresses the Company's primary market risk exposure, interest rate risk, and how it is managed through simulation analyses Interest Rate Risk Management The Company's primary market risk is interest rate risk, managed through ALCO and Board-approved policies using computer simulation analysis - Interest rate risk is the Company's primary market risk exposure, managed through policies approved by the Asset-Liability Committee (ALCO) and Board of Directors[252] - The Company uses computer simulation analysis to measure the sensitivity of projected earnings to changes in interest rates[253] - The Company's interest sensitivity position at June 30, 2025, is considered slightly asset sensitive, aiming to maintain a relatively neutral interest rate risk profile[254] Earnings Simulation The earnings simulation projects marginal decreases in net interest income for the next twelve months under both higher and lower hypothetical interest rate shock scenarios - Net interest income for the following twelve months is projected to decrease marginally when interest rates are shocked higher and lower from current rates[255] - Computations are based on numerous assumptions and should not be relied upon as indicative of actual results[257] Estimated Impact of Changes in Interest Rates on Net Interest Income (June 30, 2025, in thousands) | Change in Yield Curve | Dollars | % | | :-------------------- | :------ | :------ | | +300 basis points | $(220) | -0.42% | | +200 basis points | $(860) | -1.64% | | +100 basis points | $(880) | -1.68% | | -100 basis points | $230 | 0.44% | | -200 basis points | $(390) | -0.74% | | -300 basis points | $(2,170) | -4.14% | Economic Value Simulation The economic value simulation calculates the estimated change in net economic value of equity under different interest rate environments - Economic value simulation is used to calculate the estimated fair value of assets and liabilities, with the net economic value of equity indicating the longer-term earnings capability of the balance sheet[258] Estimated Change in Net Economic Value of Equity (June 30, 2025, in thousands) | Change in Yield Curve | Dollars | % | | :-------------------- | :------ | :------ | | +300 basis points | $24,400 | 9.60% | | +200 basis points | $19,000 | 7.48% | | +100 basis points | $11,200 | 4.41% | | -100 basis points | $(15,500) | -6.10% | | -200 basis points | $(39,200) | -15.43% | | -300 basis points | $(73,800) | -29.04% | Item 4. Controls and Procedures Management concluded that the Company's disclosure controls and procedures were effective, and there were no material changes in internal control over financial reporting - Management concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2025[261] - There were no changes in the Company's internal control over financial reporting during the second quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, internal controls[264] PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is involved in various legal proceedings incidental to its normal business operations, which are not expected to have a material adverse effect - The Company is involved in various legal proceedings, all of which are considered incidental to the normal conduct of business[265] - Management believes that the outcomes of these proceedings will not have a material adverse effect on the consolidated financial position or results of operations of the Company[265] Item 1A. Risk Factors This section highlights significant risks associated with an investment in the Company's securities, with a particular focus on those related to the proposed merger with TowneBank Risks Relating to the Consummation of the Merger and the Surviving Corporation Following the Merger Specific risks related to the proposed merger include fluctuating stock value, proration of merger consideration, integration difficulties, regulatory conditions, and potential termination fees - The market price of TowneBank common stock may fluctuate, making the market value of the stock consideration uncertain for Company shareholders, as the exchange ratio is fixed[269][270] - Shareholders may receive a form of merger consideration (cash or stock) different from what they elect due to a proration mechanism[269][272] - Combining the Company into TowneBank may be more difficult, costly, or time-consuming than expected, potentially failing to realize anticipated synergies[275][276][277] - Regulatory approvals may be delayed, not obtained, or impose conditions that could adversely affect the Surviving Corporation[279][280][281] - Failure to complete the Merger could negatively impact the Company, leading to adverse market reactions and a potential termination fee of $8.2 million payable to TowneBank[286][287] - Shareholder litigation has been filed alleging disclosure deficiencies related to the Merger, which could prevent or delay completion or result in the payment of damages[293][294] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports shares repurchased to satisfy tax obligations and confirms the absence of an active share repurchase program - During Q2 2025, 3,002 shares were withheld upon vesting of restricted stock awards to satisfy tax withholding obligations, at an average price of $39.50 per share[296] - The Company did not have an effective share repurchase program authorized by the Board of Directors during the six months ended June 30, 2025[296] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[297] Item 4. Mine Safety Disclosures The Company reported no mine safety disclosures - No mine safety disclosures were reported[299] Item 5. Other Information No directors or officers informed the Company of the adoption or termination of any Rule 10b5-1 trading arrangements during the second quarter of 2025 - During Q2 2025, none of the Company's directors or officers informed the Company of the adoption or termination of any Rule 10b5-1 trading arrangement[300] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including the Agreement and Plan of Merger, corporate documents, and various certifications - Key exhibits include the Agreement and Plan of Merger (Exhibit 2.1), Articles of Incorporation (Exhibit 3.1), Bylaws (Exhibit 3.2), Change of Control Severance Agreements (Exhibits 10.1-10.4), and certifications (Exhibits 31.1, 31.2, 32.1)[301] Signatures The report is duly signed on behalf of Old Point Financial Corporation by its CEO and CFO on August 14, 2025 - The report was signed by Robert F. Shuford, Jr., Chairman, President & Chief Executive Officer, and Cathy W. Liles, Chief Financial Officer & Senior Vice President/Finance, on August 14, 2025[305]