U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (fee required) For the fiscal year ended December 31, 1995 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (no fee required) For the transition period from to Commission File No. 0-12896 OLD POINT FINANCIAL CORPORATION (Name of issuer in its charter) Virginia 54-1265373 (State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.) 1 West Mellen Street, Hampton, Va. 23663 (Address of principal executive offices) (Zip Code) (804) 722-7451 (Issuer's telephone number) Securities registered pursuant to Section 12(b) of the Exchange Act: None Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock ($5.00 par value) (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 14, 1996 there were 1,273,537 shares of common stock outstanding and the aggregate market value of common stock of Old Point Financial Corporation held by nonaffiliates was approximately $36,465,300 based upon the last traded price per share known to Management. DOCUMENTS INCORPORATED BY REFERENCE NONE OLD POINT FINANCIAL CORPORATION Form 10-K INDEX Page PART I Item 1. Description of Business 1 General 1 Statistical Information. 2 Item 2. Description of Properties 12 Item 3. Legal Proceedings 12 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 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 8. Financial Statements and Supplementary Data 19 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 36 PART III Item 10. Directors and Executive Officers of the Registrant 37 Item 11. Executive Compensation 39 Item 12. Security Ownership of Certain Beneficial Owners and Management 40 Item 13. Certain Relationships and Related Transactions 40 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 41 -i- PART I Item 1. Description of Business General Old Point Financial Corporation (the "Company") was incorporated under the laws of Virginia on February 16, 1984, for the purpose of acquiring all the outstanding common stock of The Old Point National Bank of Phoebus (the "Bank"), in connection with the reorganization of the Bank into a one bank holding company structure. At the annual meeting of the stockholders on March 27, 1984, the proposed reorganization was approved by the requisite stockholder vote. At the effective date of the reorganization on October 1, 1984, the Bank merged into a newly formed national bank as a wholly owned subsidiary of the Company, with each outstanding share of common stock of the Bank being converted into five shares of common stock of the Company. The Company has no other subsidiaries and does not engage in any activities other than acting as a holding company for the common stock of the Bank. The principal business of the Company is conducted through the Bank, which continues to conduct its business in substantially the same manner and from the same offices as it had done before the effective date of the reorganization. The Bank, therefore, accounts for substantially all of the consolidated assets and revenues of the Company. The Bank is a national banking association founded in 1922. The Bank has thirteen offices in the cities of Hampton and Newport News, and in James City County, Virginia, and provides a full range of banking and related financial services, including checking, savings, certificates of deposit, and other depository services, commercial, industrial, residential real estate and consumer loan services, safekeeping services and trust and estate services. As of December 31, 1995, the Company had assets of $304.3 million, loans (net of unearned income) of $188.1 million, deposits of $256.5 million, and stockholders' equity of $30.3 million. At year end, the Company and the Bank had a total of 226 employees, 33 of whom were part-time. Based on 1990 census figures, the population of the Bank's trade area, which includes Hampton, Newport News, Williamsburg, and James City County was approximately 350,000. This area's economy is heavily influenced by the two largest employers; military installations and shipbuilding and ship repair. These industries are impacted by reductions in defense spending and personnel. Some of our customers are either employed at the various military installations or at the shipyard, or they derive some or all of their business from these two major employers. There are numerous military installations in the area including Fort Monroe, Langley Air Force Base, and Fort Eustis. The consolidation of the Tactical Air Command and the Strategic Air Command into the Air Combat Command at Langley has somewhat mitigated the reduction in military employment in the area. The largest private employer on the Peninsula is the Newport News Shipbuilding and Drydock Company, which currently employees approximately 17,000 people. The banking industry is highly competitive in the Hampton/Newport News/Williamsburg area. There are approximately nine commercial banks actively engaged in business in the area in which the Bank operates, including seven major statewide banking organizations. The Bank encounters competition for deposits and loans from banks, savings and loan associations and credit unions in the communities in which it operates. In addition, the Bank must compete for deposits in some instances with the money market mutual funds which are marketed nationally. The Bank is subject to regulation and examination by the Office of the Comptroller of the Currency, the Federal Reserve Board (the "Board"), and the Federal Deposit Insurance Corporation (the "FDIC"). 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. <TABLE> TABLE I AVERAGE BALANCE SHEETS, NET INTEREST INCOME* AND RATES*<F1> <CAPTION> For the years ended December 31, 1995 1994 1993 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 <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> ASSETS Loans (net of unearned income)............... 180,638 16,221 8.98% 162,963 13,917 8.54% 155,551 13,679 8.79% Investment securities: Taxable.................................... 78,411 4,690 5.98% 86,038 4,932 5.73% 78,420 4,855 6.19% Tax-exempt................................. 8,173 759 9.29% 6,315 628 9.94% 8,235 793 9.63% ------- ------- ------- ------- ------- ------- Total investment securities.............. 86,584 5,449 6.29% 92,353 5,560 6.02% 86,655 5,648 6.52% Federal funds sold........................... 4,666 264 5.66% 3,540 131 3.70% 7,634 229 3.00% ------- ------- ------- ------- ------- ------- Total earning assets....................... 271,888 21,934 8.07% 258,856 19,608 7.57% 249,840 19,556 7.83% Reserve for loan losses...................... (2,648) (2,759) (3,298) ------- ------- ------- 269,240 256,097 246,542 Cash and due from banks...................... 8,433 8,868 8,991 Bank premises and equipment.................. 8,125 8,275 9,672 Other assets................................. 5,376 5,158 5,480 ------- ------- ------- Total assets.................................$291,174 $278,398 $270,685 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Time and savings deposits: Interest-bearing transaction accounts...... 49,335 $1,303 2.64% 50,739 $1,327 2.62% 43,406 $1,217 2.80% Money market deposit accounts.............. 19,375 765 3.95% 19,526 613 3.14% 19,797 568 2.87% Passbook savings accounts.................. 26,595 730 2.74% 30,070 826 2.75% 29,203 926 3.17% Certificates of deposit, $100,000 or more.. 13,789 760 5.51% 10,979 478 4.35% 10,217 458 4.48% Other certificates of deposit.............. 97,431 5,290 5.43% 83,512 3,850 4.61% 85,029 4,127 4.85% ------- ------- ------- ------- ------- ------- Total time and savings deposits.......... 206,525 8,848 4.28% 194,826 7,094 3.64% 187,652 7,296 3.89% Federal funds purchased and securities sold under agreement to repurchase.............. 11,234 573 5.10% 14,528 503 3.46% 15,396 437 2.84% Other short term borrowings.................. 1,996 110 5.51% 617 28 4.54% 123 9 7.32% ------- ------- ------- ------- ------- ------- Total interest bearing liabilities......... 219,755 9,531 4.34% 209,971 7,625 3.63% 203,171 7,742 3.81% Demand deposits.............................. 40,843 40,004 40,870 Other liabilities............................ 1,554 1,729 1,747 ------- ------- ------- Total liabilities.......................... 262,152 251,704 245,788 Stockholders' equity......................... 29,022 26,694 24,897 ------- ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...$291,174 $278,398 $270,685 ======= ======= ======= Net interest income/yield.................... $12,403 4.56% $11,983 4.63% $11,814 4.73% ===== ===== ===== Total deposits...............................$247,368 $234,830 $228,522 <FN> <F1> * Computed on a fully taxable equivalent basis using a 34% rate </FN> </TABLE> 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> TABLE II ANALYSIS OF CHANGE IN NET INTEREST INCOME*<F1> <CAPTION> Dollars in thousands Year 1995 over 1994 Year 1994 over 1993 Year 1993 over 1992 Due to change in: Net Due to change in: Net Due to change in: Net Average Average Increase Average Average Increase Average Average Increase Volume Rate (Decrease) Volume Rate (Decrease) Volume Rate (Decrease) INCOME FROM EARNING ASSETS <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Loans...................................... $1,509 $795 $2,304 $652 ($414) $238 ($1,655) ($928) ($2,583) Investment securities: Taxable.................................. ($437) $195 (242) $472 ($395) 77 $1,214 ($410) 804 Tax-exempt............................... $185 ($54) 131 ($185) $20 (165) ($201) ($50) (251) ------ ------ ------ ------ ------ ------ ------ ------ ------ Total investment securities............ (252) 141 (111) 287 (375) (88) 1,013 (460) 553 Federal funds sold......................... $42 $91 133 ($123) $25 (98) $45 ($39) 6 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total income from earning assets......... 1,299 1,027 2,326 816 (764) 52 (597) (1,427) (2,024) INTEREST EXPENSE Time and savings deposits: Interest-bearing transaction accounts.... ($37) $13 (24) $206 ($96) 110 $180 ($235) (55) Money market deposit accounts............ ($5) $157 152 ($8) $53 45 ($9) ($120) (129) Passbook savings accounts................ ($95) ($1) (96) $27 ($127) (100) $274 ($146) 128 Certificates of deposit, $100,000 or more $122 $160 282 $34 ($14) 20 ($180) ($106) (286) Other certificates of deposit............ $642 $798 1,440 ($74) ($203) (277) ($825) ($1,018) (1,843) ------ ------ ------ ------ ------ ------ ------ ------ ------ Total time and savings deposits........ 627 1,127 1,754 185 (387) (202) (560) (1,625) (2,185) Federal funds purchased and securities sold under agreement to repurchase............ ($114) $184 70 ($25) $91 66 $35 ($100) (65) Other short term borrowings................ $63 $19 82 $36 ($17) 19 ($9) $2 (7) ------ ------ ------ ------ ------ ------ ------ ------ ------ Total interest bearing liabilities....... 576 1,330 1,906 196 (313) (117) (534) (1,723) (2,257) CHANGE IN NET INTEREST INCOME.............. $723 ($303) $420 $620 ($451) $169 ($63) $296 $233 =============================================================================================================================== <FN> <F1> * Computed on a fully taxable equivalent basis (using a 34% rate) </FN> </TABLE> Interest Sensitivity The following table reflects the earlier of the maturity or repricing data for various assets and liabilities as of December 31, 1995. <TABLE> TABLE III INTEREST SENSITIVITY ANALYSIS AS OF DECEMBER 31, 1995 DOLLARS IN THOUSANDS <CAPTION> MATURITY WITHIN 4-12 1-5 OVER USES OF FUNDS 3 MONTHS MONTHS YEARS 5 YEARS TOTAL <S> <C> <C> <C> <C> <C> FEDERAL FUNDS SOLD 513 -- -- -- 513 TAXABLE INVESTMENTS 11,224 13,205 45,478 10,003 79,910 TAX-EXEMPT INVESTMENTS 250 201 1,467 10,795 12,713 ------ ------ ------ ------ ------ TOTAL INVESTMENTS 11,987 13,406 46,945 20,798 93,136 LOANS: COMMERCIAL 29,852 3,640 18,438 904 52,834 TAX-EXEMPT 1,988 10 140 865 3,003 INSTALLMENT 65 1,361 45,314 2,513 49,253 REAL ESTATE 11,683 4,566 56,158 10,093 82,500 OTHER 465 -- -- -- 465 ------ ------ ------ ------ ------ TOTAL LOANS 44,053 9,577 120,050 14,375 188,055 ------ ------ ------ ------ ------ TOTAL EARNING ASSETS 56,040 22,983 166,995 35,173 281,191 SOURCES OF FUNDS INTEREST CHECKING DEPOSITS 50,371 -- -- -- 50,371 MONEY MARKET DEPOSIT ACCOUNTS 19,268 -- -- -- 19,268 REGULAR SAVINGS ACCOUNTS 26,166 -- -- -- 26,166 CERTIFICATES OF DEPOSIT, $100,000 OR MORE 3,392 9,215 2,629 -- 15,236 OTHER TIME DEPOSITS 20,436 51,060 31,058 38 102,592 FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 14,884 852 -- -- 15,736 OTHER BORROWINGS 507 -- 53 -- 560 ------ ------ ------ ------ ------ TOTAL INTEREST BEARING LIABILITIES 135,024 61,127 33,740 38 229,929 RATE SENSITIVITY GAP (78,984) (38,144) 133,255 35,135 51,262 CUMULATIVE GAP (78,984)(117,128) 16,127 51,262 </TABLE> The Company was liability sensitive as of December 31, 1995. There were $80.0 million more in liabilities than assets subject to repricing within three months. This generally indicates that net interest income should improve if interest rates fall since liabilities will reprice faster than assets. It should be noted, however, that savings deposits; which consist of interest bearing transactions accounts, money market accounts, and savings accounts; are less interest sensitive than other market driven deposits. In a rising rate environment these deposit rates have historically lagged behind the changes in earning asset rates, thus mitigating somewhat the impact from the liability sensitivity position. II. Investment Portfolio Note 2 of the Notes to Financial Statements found in Item 8. Financial Statements and Supplementary Data of this Report on Form 10K presents the book and market value of investment securities on the dates indicated. The following table shows, by type and maturity, the book value and weighted average yields of investment securities at December 31, 1995. <TABLE> TABLE IV INVESTMENT SECURITY MATURITIES & YIELDS*<F1> <CAPTION> U.S.Govt/Agency State/Municipal Total Book Weighted Book Weighted Book Weighted Value Average Value Average Value Average Dollars in Thousands Yield Yield Yield <S> <C> <C> <C> <C> <C> <C> December 31, 1995 Maturities: $19,155 6.02% $548 10.69% $19,703 6.15% Within 1 year 45,085 5.74% 1,336 9.60% 46,421 5.85% After 1 year, but within 5 years 9,998 7.26% 3,828 9.04% 13,826 7.75% After 5 years, but within 10 years 0 0.00% 6,558 8.07% 6,558 8.07% After 10 years $74,238 6.02% $12,270 8.66% $86,508 6.39% TOTAL December 31, 1994 $74,384 5.74% $6,736 9.57% $81,120 6.06% December 31, 1993 $88,900 5.85% $6,738 9.86% $95,638 6.13% <FN> <F1> *Yields are calculated on a fully tax equivalent basis using a 34% rate. </FN> </TABLE> The book value of other marketable equity securities with no stated maturity totalled $5.31 million, yielding 6.03%; $5.23 million, yielding 4.41%; and $3.62 million, yielding 4.23%; at December 31, 1995, 1994, and 1993 respectively. There were no other securities, except Federal Reserve Bank stock, which remained constant for the period at $84,850, earning a six percent (6%) dividend. III. Loan Portfolio The following table shows a breakdown of total loans by type at December 31 for years 1991 through 1995: <TABLE> TABLE V LOANS <CAPTION> As of December 31, Dollars in thousands 1995 1994 1993 1992 1991 <S> <C> <C> <C> <C> <C> Commercial and other $ 20,636 $ 17,806 $ 16,836 $ 17,043 $ 20,836 Real Estate Construction 4,093 1,991 2,353 2,420 6,570 Real Estate Mortgage 109,469 105,703 96,185 105,424 110,990 Tax Exempt Loans 3,003 4,754 5,585 6,987 7,717 Installment Loans to Individuals (net of Unearned Income) 50,854 43,487 29,322 29,640 34,069 Total $188,055 $173,741 $150,282 $161,514 $180,182 </TABLE> Based on Standard Industry Code, there are no categories of loans which exceed 10% of total loans other than the categories disclosed in the preceding table. The maturity distribution and rate sensitivity of certain categories of the Bank's loan portfolio at December 31, 1995 is presented below: <TABLE> TABLE VI MATURITY SCHEDULE OF SELECTED LOANS <CAPTION> December 31, 1995 Dollars in thousands One year One through Over five or less five years years Total <S> <C> <C> <C> <C> Commercial and other $10,654 $ 9,982 --- $20,636 Real estate construction 4,077 16 --- 4,093 Total $14,731 $ 9,998 --- $24,729 Loans maturing after one year with: Fixed interest rate $5,963 --- $ 5,963 Variable interest rate $4,019 --- $ 4,019 </TABLE> The following table presents information concerning the aggregate amount of nonaccrual, past due and restructured loans as of December 31 for the years 1991 through 1995. <TABLE> TABLE VII NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS <CAPTION> As of December 31, Dollars in thousands 1995 1994 1993 1992 1991 <S> <C> <C> <C> <C> <C> Nonaccrual loans $2,447 $2,955 $5,328 $4,670 $ 128 Accruing loans past due 90 days or more 248 837 458 2,239 1,827 Restructured loans none none none none none Interest income which would have been recorded under original loans terms 350 470 570 783 88 Interest income recorded during the period 131 188 239 478 1 </TABLE> Loans are placed in nonaccrual status if principal or interest has been in default for a period of 90 days or more unless the obligation is both well secured and in the process of collection. A debt is "well secured" if it is secured (i) by collateral in the form of liens on or pledges of real or personal property, including securities, that have a realizable value sufficient to discharge the debt in full or (ii) by the guaranty of a financially responsible party. A debt is "in the process of collection" if collection of the debt is proceeding in due course either through legal action, including judgment enforcement procedures, or, in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status. Potential problem loans consist of loans that, because of potential credit problems of the borrowers, have caused management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms. At December 31, 1995 such problem loans, not included in Table VII, amounted to approximately $3.2 million. The potential problem loans included one relationship in excess of $500 thousand. The potential problem loans are generally secured by residential and commercial real estate with appraised values exceeding the principal balance of the loan. IV. Summary of Loan Loss Experience The determination of the balance of the Allowance for Loan Losses is based upon a review and analysis of the loan portfolio and reflects an amount which, in management's judgment, is adequate to provide for possible future losses. Management's review includes monthly analysis of past due and nonaccrual loans and detailed periodic loan by loan analyses. The principal factors considered by management in determining the adequacy of the allowance are the growth and composition of the loan portfolio, historical loss experience, the level of nonperforming loans, economic conditions, the value and adequacy of collateral, and the current level of the allowance. The following table shows an analysis of the Allowance for Loan Losses for the years 1991 through 1995. <TABLE> TABLE VIII ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES <CAPTION> For the year ended December 31, Dollars in thousands 1995 1994 1993 1992 1991 <S> <C> <C> <C> <C> <C> Balance at beginning of period $2,647 $2,692 $3,719 $3,233 $1,776 Charge Offs: Commercial, financial and agricultural 1,210 147 1,178 1,610 1,280 Real estate construction --- --- --- --- --- Real estate mortgage 135 316 230 152 217 Installment Loans to individuals 375 148 179 287 402 Total charge offs 1,720 611 1,587 2,049 1,899 Recoveries: Commercial, financial and agricultural 296 431 174 80 14 Real estate construction --- --- --- --- --- Real estate mortgage 44 19 7 14 12 Installment Loans to individuals 159 91 129 141 130 Total recoveries 499 541 310 235 156 Net charge offs 1,221 70 1,277 1,814 1,743 Additions charged to operations 825 25 250 2,300 3,200 Balance at end of period $2,251 $2,647 $2,692 $3,719 $3,233 Selected loan loss statistics Loans (net of unearned income): End of period $188,055 $173,741 $150,282 $161,514 $180,182 Daily average $180,638 $160,204 $155,551 $173,172 $184,751 Net charge offs to average total loans .68% .04% 0.82% 1.05% 0.94% Provision for loan losses to average total loans .46% .02% 0.16% 1.33% 1.73% Provision for loan losses to net charge offs 67.57% 35.71% 19.58% 126.79% 183.59% Allowance for loan losses to period end loans 1.20% 1.52% 1.79% 2.30% 1.79% Earnings to loan loss coverage*<F1> 3.25 56.21 2.45 2.43 2.83 <FN> <F1> *Income before income taxes plus provision for loan losses, divided by net charge-offs. </FN> </TABLE> The following table shows the amount of the Allowance for Loan Losses allocated to each category at December 31 for the years 1991 through 1995. <TABLE> TABLE IX ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES 1995 1994 1993 1992 1991 <CAPTION> As of December 31, Dollar in thousands Amount Percent Amount Percent Amount Percent Amount Percent Amount 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 to Total to Total to Total to Total to Total Loans Loans Loans Loans Loans <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Commercial and other $1,241 12.57% $1,334 12.98% $1,779 28.96% $2,713 29.29% $1,101 34.07% Real estate construction 55 2.18% 21 1.15% 27 1.52% 51 1.50% 43 1.34% Real estate mortgage 564 58.21% 912 60.84% 740 49.81% 709 50.90% 1,521 47.03% Consumer 391 27.04% 380 25.03% 146 19.71% 246 18.31% 568 17.56% Total $2,251 100.00% $2,647 100.00% $2,692 100.00% $3,719 100.00% $3,233 100.00% </TABLE> The allocation amounts for 1991 have been reclassified to reflect the classification adopted in 1992. V. Deposits The following table shows the average balances and average rates paid on deposits for the years ended December 31, 1993, 1994, and 1995. <TABLE> TABLE X DEPOSITS <CAPTION> For the year ended December 31, 1995 1994 1993 Dollars in thousands Average Average Average Average Average Average Balance Rate Balance Rate Balance Rate <S> <C> <C> <C> <C> <C> <C> Interest bearing transaction accounts $ 49,335 2.64% $ 50,739 2.62% $ 43,406 2.80% Money market deposit accounts 19,375 3.95% 19,526 3.14% 19,797 2.87% Savings accounts 26,595 2.74% 30,070 2.75% 29,203 3.17% Certificates of deposit, $100,000 or more 13,789 5.51% 10,979 4.35% 10,217 4.48% Other certificates of deposit 97,431 5.43% 83,512 4.61% 85,029 4.85% Total interest bearing deposits 206,525 4.28% 194,826 3.64% 187,652 3.89% Non-interest bearing demand deposits 40,843 40,004 40,870 Total deposits $247,368 $234,830 $228,522 </TABLE> The following table shows certificates of deposit in amounts of $100,000 or more as of December 31, 1995, 1994, and 1993 by time remaining until maturity. <TABLE> TABLE XI CERTIFICATES OF DEPOSIT $100,000 & MORE <CAPTION> (Dollars in thousands) 1995 1994 1993 <S> <C> <C> <C> Maturing in 3 months or less $3,392 $1,941 $3,359 3 through 6 months 3,779 1,464 2,451 6 through 12 months 5,436 5,714 2,593 over 12 months 2,629 3,529 1,830 Total $15,236 $12,648 $10,233 </TABLE> VI. Return on Equity and Assets The return on average shareholders' equity and assets, the dividend pay out ratio, and the average equity to average assets ratio for the past three years are presented below. 1995 1994 1993 Return on average assets 0.80% 1.00% 0.82% Return on average equity 8.07% 10.39% 8.90% Dividend payout ratio 33.17% 25.03% 28.17% Average equity to average assets 9.97% 9.59% 9.20% 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 1995, 1994, and 1993 are presented below: <TABLE> TABLE XII SHORT TERM BORROWINGS <CAPTION> 1995 1994 1993 Dollars in thousands Balance Rate Balance Rate Balance Rate <S> <C> <C> <C> <C> <C> <C> Balance at December 31, Federal funds purchased $ 1,400 5.63% $ 2,930 5.88% $ --- 3.19% Securities sold under agreements to repurchase 14,336 4.33% 10,764 4.54% 12,845 2.74% U.S. treasury demand notes and other borrowed money 560 3.25% 1,162 5.42% 92 7.36% Total $16,296 $14,789 $12,937 Average daily balance outstanding: Federal funds purchased $ 96 6.03% $ 932 4.77% $ 3 2.90% Securities sold under agreements to repurchase 11,438 5.01% 13,596 3.37% 15,395 2.84% U.S. treasury demand notes and other borrowed money 1,996 5.46% 617 4.55% 122 6.85% Total $13,530 5.09% $15,145 3.50% $12,589 2.87% The maximum amount outstanding at any month end: Federal funds purchased $ 1,400 $ 4,600 $ --- Securities sold under agreements to repurchase $14,636 $18,598 $20,202 U.S. treasury demand notes and other borrowed money $ 4,066 $ 4,072 $ 397 </TABLE> Item 2. Description of Property The Bank owns the Main Office, an office building, and eight 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 two branches are leased from unrelated parties under leases with renewal options which expire anywhere from 10-20 years. The Bank has received approval for a new branch which will be located at Kiln Creek Parkway near Victory Blvd. and is scheduled to open in the summer of 1996. For more information concerning the commitments under current leasing agreements, see Note 10. Lease Commitments of the Notes to Financial Statements found in Item 8. Financial Statements and Supplementary Data of this Report on Form 10K. Additional information on Other Real Estate Owned can be found in Note 6. Other Real Estate Owned of the Notes to Financial Statements found in Item 8. Financial Statements and Supplementary Data of this Report on Form 10K. Item 3. Legal Proceedings The Company is not a party to any material pending legal proceedings before any court, administrative agency, or other tribunal. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the quarter ended December 31, 1995. Part II Item 5. Market for Common Equity And Related Stockholder Matters The common stock of Old Point Financial Corporation is not listed on an exchange and is not quoted by NASDAQ. The approximate number of shareholders of record as of December 31, 1995 was 1,364. The range of high and low prices and dividends per share of the Company's common stock for each quarter during 1995 and 1994 is presented in Part I. Item 7. of this Annual Report on Form 10-K. Additional information related to stockholder matters can be found in Note 15. Regulatory Matters of the Notes to Financial Statements found in Item 8. Financial Statements and Supplementary Data of this Report on Form 10K. Item 6. Selected Financial Data The following table summarizes the Company's performance for the past five years. <TABLE> OLD POINT FINANCIAL CORPORATION SELECTED FINANCIAL DATA <CAPTION> Dollars in thousands YEAR ENDED DECEMBER 31, except per share data 1995 1994 1993 1992 1991 RESULTS OF OPERATIONS <S> <C> <C> <C> <C> <C> Interest income......................... $21,534 $19,234 $19,105 $20,988 $23,654 Interest expense........................ 9,531 7,625 7,743 9,999 13,361 ------ ------ ------ ------ ------ Net interest income..................... 12,003 11,609 11,362 10,989 10,293 Provision for loan loss................. 825 25 250 2,300 3,200 ------ ------ ------ ------ ------ Net interest income after provision for 11,178 11,584 11,112 8,689 7,093 Gains on sales of investment securities. 9 407 19 463 480 Noninterest income...................... 3,836 3,755 4,003 3,589 3,325 Noninterest expenses.................... 11,884 11,837 12,252 10,627 9,157 ------ ------ ------ ------ ------ Income before taxes..................... 3,139 3,909 2,882 2,114 1,741 Applicable income taxes ................ 797 1,136 667 376 279 ------ ------ ------ ------ ------ Net income.............................. $2,342 $2,773 $2,215 $1,738 $1,462 FINANCIAL CONDITION Total assets............................ $304,266 $277,680 $273,884 $268,721 $266,032 Total deposits.......................... 256,535 235,599 234,171 231,509 227,139 Total loans............................. 188,055 173,741 150,282 161,514 180,182 Stockholders' equity.................... 30,328 26,222 25,836 24,193 22,932 Average assets.......................... 291,174 278,398 270,685 268,917 258,662 Average equity.......................... 29,022 26,694 24,897 23,856 22,996 PERTINENT RATIOS Return on average assets................ 0.80% 1.00% 0.82% 0.65% 0.57% Return on average equity................ 8.07% 10.39% 8.90% 7.29% 6.36% Dividends paid as a percent of net incom 33.17% 25.03% 28.17% 28.40% 33.74% Average equity as a percent of average a 9.97% 9.59% 9.20% 8.87% 8.89% PER SHARE DATA Net income.............................. $1.84 $2.20 $1.77 $1.41 $1.19 Cash dividends declared................. 0.61 0.55 0.50 0.40 0.40 Book value.............................. 23.81 20.75 20.60 19.47 18.59 GROWTH RATES Year end assets......................... 9.57% 3.33% 1.92% 1.01% 7.36% Year end deposits....................... 8.89% 1.77% 1.15% 1.92% 10.08% Year end loans.......................... 8.24% 7.57% -6.95% -10.36% -4.05% Year end equity......................... 15.66% 8.39% 6.79% 5.50% 4.45% Average assets.......................... 4.59% 3.53% 0.66% 3.96% 9.00% Average equity.......................... 8.72% 11.90% 4.36% 3.74% 9.89% Net income.............................. -15.54% 59.55% 27.45% 18.88% -39.56% Cash dividends declared................. 10.91% 37.50% 25.00% 0.00% 0.00% Book value.............................. 14.78% 6.54% 5.78% 4.73% 4.41% </TABLE> 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 $2.34 million, or $1.84 per share in 1995 compared to $2.77 million, or $2.20 per share in 1994 and $2.22 million, or $1.77 per share in 1993. Return on average assets was 0.80% in 1995, 1.00% in 1994, and 0.82% in 1993. Return on average equity was 8.07% in 1995, 10.39% in 1994 and 8.90% in 1993. For the past five years return on average assets has averaged 0.77% and return on average equity has averaged 8.20%. 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 $12.40 million in 1995, up $420 thousand, or 4% from $11.98 million in 1994 which was up $169 thousand, or 1% from $11.81 million in 1993. 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 4.56% in 1995 from 4.63% in 1994 which was down from 4.73% in 1993. Tax equivalent interest income for 1995 increased $2.33 million. Average earning assets grew $13.03 million, or 5%. In 1995, total average loans increased $17.68 million, or 11%, while average investment securities decreased $5.77 million, or 6%. Interest expense increased $1.91 million, or 25%, in 1995. Based on average balances, the mix of interest bearing liabilities shifted in 1995 from lower paying savings and interest checking accounts to higher paying certificates of deposit. This shift to higher cost funds caused the decline of seven basis points in the net interest yield. 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 increased to $825 thousand in 1995 from $25 thousand in 1994 which was down from $250 thousand in 1993. Loans charged off during 1995 totalled $1.72 million compared to $611 thousand in 1994 and $1.59 million in 1993, while recoveries amounted to $499 thousand in 1995, $541 thousand in 1994 and $310 thousand in 1993. Net loans charged off to year-end loans were 0.65% in 1995, 0.04% in 1994, and 0.85% in 1993. The allowance for loan losses, as a percentage of year-end loans, was 1.20% in 1995, 1.52% in 1994, and 1.79% in 1993. As of December 31, 1995 nonperforming assets were $3.40 million, up from $3.17 million at year-end 1994 which was down from $6.19 million at year-end 1993. Nonperforming assets consist of loans in nonaccrual status and other real estate. The 1995 total consisted of other real estate of $954 thousand and $2.45 million in nonaccrual loans. The other real estate consisted of $530 thousand in foreclosed commercial property, $354 thousand in a commercial property originally acquired as a potential branch site and now held for sale, and $70 thousand in foreclosed one-to-four family residences. Nonaccrual loans consisted of $1.07 million in commercial loans and $1.38 million in mortgage loans. The Company has aggressively dealt with these credits and specific action plans have been developed for each of these classified loans to address any deficiencies. Loans still accruing interest but past due 90 days or more decreased to $248 thousand as of December 31, 1995 compared to $837 thousand as of December 31, 1994 and $458 thousand as of December 31, 1993. 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 decreased $317 thousand, or 8% in 1995 from 1994 compared to an increase of $140 thousand, or 3% in 1994 over 1993. The 1995 decrease was due primarily to lower security gains. The 1994 security gains of $407 thousand were the result of the sale of investment securities as an asset/liability strategy to reduce the interest rate risk in the portfolio. OTHER EXPENSES Other expenses remained almost constant in 1995 from 1994 after decreasing $415 thousand, or 3%, in 1994 from 1993. Salaries and employee benefits increased 2% in 1995 due to normal salary increases and increased profit sharing contributions. Equipment expense decreased 14% due to lower depreciation expense. Other operating expenses increased 2%. Lower FDIC insurance premiums were offset by higher postage and stationery and supplies expenses. ASSETS At December 31, 1995, the Company had total assets of $304.3 million, up 10% from $277.7 million at December 31, 1994. Average assets in 1995 were $291.2 million compared to $278.4 million in 1994. The growth in assets in 1995 was due to the increase in certificates of deposit as customers took advantage of higher interest rates. During 1995 the Company began the conversion of its main frame computer system. The new system consists of a new main frame computer, a new proof of deposit reader/sorter, a new personal computer based teller system, and the computer application software. The total cost of these capital expenditures will be approximately $1.3 million. This conversion is scheduled for completion in the first quarter of 1996. The Company has begun construction of a new branch office in the Kiln Creek area of York County. The total cost of this branch will be approximately $850 thousand. The Kiln Creek branch is scheduled to open in the summer of 1996. LOANS The Company experienced strong loan demand in 1995. Total loans (net of unearned income) as of December 31, 1995 were $188.1 million, up 8% from $173.7 million at December 31, 1994. All categories of loans increased during 1995 except tax exempt loans. Footnote 3 of the financial statements details the loan volume by category for the past two years. INVESTMENT SECURITIES At December 31, 1995 total investment securities were $92.6 million, up 11% from $83.5 million on December 31, 1994. The increase in the investment portfolio was due to the growth in deposits exceeding the growth in loans. 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, 1995, total deposits amounted to $256.5 million, up 9% from $235.6 million on December 31, 1994. Non-interest bearing deposits increased $5.8 million, or 16%, in 1995 over 1994. Savings deposits decreased $1.2 million, or 1%, in 1995 from 1994. Certificates of Deposit increased $16.3 million, or 16% in 1995 over 1994. Due to the increase in interest rates, customers are now investing in certificates of deposits. STOCKHOLDERS' EQUITY Total stockholders' equity as of December 31, 1995 was $30.3 million, up 16% from $26.2 million on December 31, 1994. 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 stockholder's 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 1995, 1994 and 1993. 1995 Regulatory Requirements 1995 1994 1993 Tier 1 4.00% 15.47% 16.32% 17.16% Total Capital 8.00% 16.47% 17.57% 18.42% Tier 1 Leverage 3.00% 9.80% 10.00% 9.32% Year-end book value was $23.81 in 1995 and $20.75 in 1994. Cash dividends were $777 thousand, or $.61 per share in 1995 and $694 thousand, or $.55 per share in 1994. The common stock of the Company has not been extensively traded. The stock is not listed on an exchange and is not quoted by NASDAQ. Bid and ask prices are not available for the Company. The volume of trading of the stock is therefore limited. The prices below are based upon a limited number of transactions known to Management during the past two years. There were 1,410 stockholders of the Company as of December 31, 1995. This stockholder count does not include stockholders who hold their stock in a nominee registration. The following is a summary of the dividends paid and market price on Old Point Financial Corporation common stock for 1995 and 1994. <TABLE> <CAPTION> 1995 1994 Dividend Market Value Dividend Market Value High Low High Low <S> <C> <C> <C> <C> <C> <C> 1st Quarter $ 0.15 $ 37.50 $ 37.00 $ 0.125 $ 35.00 $ 35.00 2nd Quarter $ 0.15 $ 37.50 $ 37.50 $ 0.125 $ 37.50 $ 35.00 3rd Quarter $ 0.15 $ 37.50 $ 37.50 $ 0.15 $ 37.50 $ 35.00 4th Quarter $ 0.16 $ 37.50 $ 37.50 $ 0.15 $ 37.00 $ 36.00 </TABLE> LIQUIDITY Liquidity is the ability of the Company to meet present and future obligations through the acquisition of additional liabilities or sale of existing assets. Management considers the liquidity of the Company to be adequate. Sufficient assets are maintained on a short-term basis to meet the liquidity demands anticipated by Management. In addition, secondary sources are available through the use of borrowed funds if the need should arise. EFFECTS OF INFLATION Management believes that the key to achieving satisfactory performance in an inflationary environment is its ability to maintain or improve its net interest margin and to generate additional fee income. The Company's policy of investing in and funding with interest-sensitive assets and liabilities is intended to reduce the risks inherent in a volatile inflationary economy. 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. Independent Auditors' Report To the Board of Directors Old Point Financial Corporation Hampton, Virginia We have audited the accompanying consolidated balance sheets of Old Point Financial Corporation and subsidiary as of December 31, 1995 and 1994, 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, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects, the consolidated financial position of Old Point Financial Corporation and subsidiary as of December 31, 1995 and 1994, and the consolidated results of their operations and cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. January 12, 1996 Newport News, Virginia <TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994 (Dollars in Thousands) 1995 1994 <S> <C> <C> ASSETS Cash and due from banks $ 10,932 $ 8,941 Investments: Securities available for sale, at market 77,604 82,599 Securities to be held to maturity (Market value $15,087, and $918 in 1994) 15,020 919 Federal funds sold 513 247 Loans, total 188,055 173,741 Less - allowance for loan losses 2,251 2,647 Net loans 185,804 171,094 Premises and equipment 8,302 7,433 Other real estate owned 954 214 Other assets 5,137 6,233 Total assets $ 304,266 $ 277,680 LIABILITIES Non interest-bearing deposits $ 42,902 $ 37,086 Savings deposits 95,805 96,986 Certificates of deposit 117,828 101,527 Total deposits 256,535 235,599 Federal funds purchased and securities sold under repurchase agreements 15,736 13,694 Interest bearing demand notes issued to the United States Treasury and other liabilities for borrowed money 560 1,162 Other liabilities 1,107 1,003 Total liabilities 273,938 251,458 STOCKHOLDERS' EQUITY Common stock, $5 par value, 3,000,000 shares authorized Issued 1,273,537 in 1995 and 1,263,903 in 1994 6,368 6,320 Capital surplus 9,345 9,032 Retained earnings 14,085 12,793 Unrealized gain (loss) on securities 530 (1,923) Total stockholders' equity 30,328 26,222 Total liabilities and stockholders' equity $ 304,266 $ 277,680 See Notes to Consolidated Financial Statements. </TABLE> <TABLE> CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 1995, 1994 and 1993 (Dollars in thousands except per share amounts) <CAPTION> 1995 1994 1993 <S> <C> <C> <C> INTEREST INCOME Interest and fees on loans $ 16,079 $ 13,757 $ 13,497 Interest on investment securities Taxable 4,690 4,932 4,840 Exempt from income tax 501 414 523 5,191 5,346 5,363 Interest on trading account securities --- --- 16 Interest on federal funds sold 264 131 229 Total interest income 21,534 19,234 19,105 INTEREST EXPENSE Interest on savings deposits 2,797 2,766 2,710 Interest on certificates of deposit 6,051 4,328 4,587 Interest on federal funds purchased and securities sold under repurchase agreements 573 503 437 Interest on demand notes issued to the United States Treasury and other liabilities for borrowed money 110 28 9 Total interest expense 9,531 7,625 7,743 Net interest income 12,003 11,609 11,362 Provision for loan losses 825 25 250 Net interest income after provision for loan losses 11,178 11,584 11,112 OTHER INCOME Income from fiduciary activities 1,441 1,463 1,336 Service charges on deposit accounts 1,893 1,780 1,777 Other service charges, commissions and fees 280 290 651 Security gains, net 9 407 19 Income from trading account --- --- 62 Other operating income 222 222 177 Total other income 3,845 4,162 4,022 OTHER EXPENSE Salaries and employee benefits 7,178 7,050 6,807 Occupancy expense 714 700 748 Equipment expense 959 1,116 1,199 Other expense 3,033 2,971 3,498 Total other expenses 11,884 11,837 12,252 Income before income taxes 3,139 3,909 2,882 Income taxes 797 1,136 667 Net income $ 2,342 $ 2,773 $ 2,215 PER SHARE Average shares outstanding (in thousands) 1,272 1,260 1,248 Net income per share of common stock $ 1.84 $ 2.20 $ 1.77 See Notes to Consolidated Financial Statements. </TABLE> <TABLE> CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1995, 1994 and 1993 <CAPTION> 1995 1994 1993 <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income................................................ $ 2,342 $ 2,773 $ 2,215 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................... 768 884 919 Provision for loan losses............................... 825 25 250 Market write-downs on other real estate owned............. 0 0 65 Gains on sale of investment securities, net............. (9) (407) (19) Net amortization & accretion of securities available for 1,078 1,340 759 Net (increase) decrease in trading account.............. 0 0 0 Increase in other real estate owned..................... (553) (13) (767) (Increase) decrease in other assets (net of tax effect of FASB 115 adjustment)............ (168) (262) (362) Increase (decrease) in other liabilities................ 104 63 (181) Net cash provided by operating activities............. 4,387 4,403 2,879 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities ................................ (31,772) (8,902) (37,364) Proceeds from maturities & calls of securities ......... 25,315 11,928 14,377 Proceeds from sales of securities ...................... 0 8,982 125 Loans made to customers................................. (104,681) (120,330) (97,917) Principal payments received on loans.................... 89,145 96,801 107,872 Purchases of premises and equipment..................... (1,991) (178) (1,077) Proceeds from sales of other real estate owned.......... 167 664 3,431 (Increase) decrease in federal funds sold............... (266) 4,553 2,520 Net cash provided by (used in) investing activities... (24,083) (6,482) (8,033) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in non-interest bearing deposits.... 5,816 (2,494) (3,814) Increase (decrease) in savings deposits................. (1,181) (5,009) 13,620 Proceeds from the sale of certificates of deposit....... 66,693 67,378 37,379 Payments for maturing certificates of deposit........... (50,392) (58,447) (44,522) Increase (decrease) in federal funds purchased & repurchase agreements.................................. 2,042 849 1,062 Increase (decrease) in interest bearing demand notes and other borrowed money.................. (602) 1,070 (23) Proceeds from issuance of common stock.................. 88 200 70 Dividends paid.......................................... (777) (693) (624) Net cash provided by financing activities............. 21,687 2,854 3,148 Net increase (decrease) in cash and due from banks.... 1,991 775 (2,006) Cash and due from banks at beginning of period........ 8,941 8,166 10,172 Cash and due from banks at end of period.............. $ 10,932 $ 8,941 $ 8,166 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash payments for: Interest.............................................. $ 9,286 $ 7,561 $ 7,859 Income taxes............................................... 830 980 375 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING TRANSACTIONS Unrealized gain (loss) on investment securities, net of tax................................ $ 2,453 $ (1,894) $ (18) Transfer of property from premises and equipment to other real estate owned................... $ 354 $ -- $ -- See Notes to Consolidated Financial Statements. </TABLE> <TABLE> CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Years Ended December 31, 1995, 1994 and 1993 (Dollars in Thousands) <CAPTION> Unrealized Common Gain (Loss) on Total Stock Capital Retained Investment Stockholders' (Par Value) Surplus Earnings Securities Equity <S> <C> <C> <C> <C> <C> YEAR ENDED DECEMBER 31, 1993 Balance, beginning of year $ 3,106 $ 5,396 $ 15,703 $ (12) $ 24,193 Net income --- --- 2,215 --- 2,215 Sale of stock 50 227 (207) --- 70 Stock dividend declared on common stock 3,115 3,115 (6,230) --- --- Increase in unrealized gain (loss) on marketable equity securities --- --- --- (17) (17) Cash dividends paid ($0.50 per share) --- --- (625) --- (625) Balance, end of year $ 6,271 $ 8,738 $ 10,856 $ (29) $ 25,836 YEAR ENDED DECEMBER 31, 1994 Balance, beginning of year $ 6,271 $ 8,738 $ 10,856 $ (29) $ 25,836 Net income --- --- 2,773 --- 2,773 Sale of stock 49 294 (142) --- 201 Increase in unrealized gain (loss) on marketable equity securities --- --- --- (1,894) (1,894) Cash dividends paid ($0.55 per share) --- --- (694) --- (694) Balance, end of year $ 6,320 $ 9,032 $ 12,793 $ (1,923) $ 26,222 YEAR ENDED DECEMBER 31, 1995 Balance, beginning of year $ 6,320 $ 9,032 $ 12,793 $ (1,923) $ 26,222 Net income --- --- 2,342 --- 2,342 Sale of stock 48 313 (273) --- 88 Increase in unrealized gain (loss) on investment securities --- --- --- 2,453 2,453 Cash dividends paid ($0.61 per share) --- --- (777) --- (777) Balance, end of year $ 6,368 $ 9,345 $ 14,085 $ 530 $ 30,328 See Notes to Consolidated Financial Statements. </TABLE> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1.SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Old Point Financial Corporation and its subsidiary conform to generally accepted accounting principles and to general practice within the banking industry. The following is a summary of significant accounting and reporting policies: PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Old Point Financial Corporation ("the Company") and its subsidiary The Old Point National Bank of Phoebus ("the Bank"). All significant intercompany balances and transactions have been eliminated in consolidation. NATURE OF BUSINESS: Old Point Financial Corporation is a one-bank holding company that conducts substantially all of its operations through its subsidiary The Old Point National Bank of Phoebus. The Bank services individual and commercial customers, the majority of which are on the Virginia Peninsula. The Bank has twelve 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. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The amounts recorded in the financial statements may be affected by those estimates and assumptions. Actual results may vary from those estimates. The Bank uses estimates primarily in developing its allowance for loan losses, in computing deferred tax assets, in determining the estimated useful lives of premises and equipment, and in the valuation of other real estate owned. 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: 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. 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. 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 excluded from earnings and reported as a separate component of equity until realized. 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. INTEREST ON LOANS: Interest is accrued daily on the outstanding balances. 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. LOAN ORIGINATION FEES AND COSTS: Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield on the related loan. ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is generated by direct charges against income and is available to absorb loan losses. The allowance is based upon management's periodic evaluation of changes in the overall credit worthiness of the loan portfolio, economic conditions in general, and the effect of these conditions upon the financial status of specific borrowers and other factors. The Bank is subject to regulation by the Office of the Comptroller of the Currency. They may require that the Bank adjust its allowance for loan losses upon request. 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: Premises and equipment are stated 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 and improvements are capitalized. INCOME TAXES: Income taxes are provided based upon income reported in the statements of income (after exclusion of non-taxable income such as interest on state and municipal securities). The income tax effect resulting from timing differences between financial statement pre- tax income and taxable income is deferred to future periods. PENSION PLAN: The Bank 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 Bank'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 net periodic pension expense includes a service cost component, interest on the projected benefit obligation, return on plan assets and the effect of deferring and amortizing certain actuarial gains and losses and the unrecognized net transition asset over fifteen years. TRUST ASSETS AND INCOME: Assets held by the Trust Department are not included in the financial statements, since such items are not assets of the Bank. 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 effect net income. STOCK SPLIT: During 1993 the Board of Directors authorized a two for one stock split effected in the form of a 100 percent stock dividend. All earnings per share amounts and share amounts included in the financial statements have been adjusted for the stock split. An amount equal to the $5 par value of the additional common shares has been transferred from retained earnings to common stock. In addition, a transfer has been made from retained earnings to capital surplus for an equal amount. RECLASSIFICATIONS: Certain amounts in the financial statements have been reclassified to conform with classifications adopted in the current year. NOTE 2. INVESTMENT SECURITIES At December 31, 1995, the investment securities portfolio is composed of securities classified as held to maturity and available for sale, in conjunction with SFAS 115. Investment securities held to maturity are carried at cost, adjusted for amortization of premiums and accretions of discounts, and investment securities available for sale are carried at market value. <TABLE> The amortized cost and fair value of investment securities held to maturity at December 31, 1995 and 1994, were: <CAPTION> Amortized Unrealized Unrealized Market Cost Gains Losses Value (Dollars in Thousands) <S> <C> <C> <C> <C> Obligations of other United States Government Agencies as of December 31, 1995 $ 15,020 $ 67 $ --- $ 15,087 Obligations of State and political subdivisions as of December 31, 1994 $ 919 $ 5 $ (6) $ 918 </TABLE> <TABLE> The amortized cost and fair values of investment securities available for sale at December 31, 1995 were: <CAPTION> December 31, 1995 Amortized Unrealized Unrealized Market Cost Gains Losses Value (Dollars in Thousands) <S> <C> <C> <C> <C> United States Treasury securities $ 53,220 $ 613 $ (178) $ 53,655 Obligations of other United States Government agencies 5,998 46 --- 6,044 Obligations of state and political subdivisions 12,270 446 (3) 12,713 Other marketable equity securities, at lower of cost or market 4,400 --- (121) 4,279 Federal Reserve Bank stock 85 --- --- 85 Federal Home Loan Bank stock 828 --- --- 828 Total $ 76,801 $ 1,105 $ (302) $ 77,604 </TABLE> <TABLE> The amortized cost and fair value of investment securities available for sale at December 31, 1994 were: <CAPTION> December 31, 1994 Amortized Unrealized Unrealized Market Cost Gains Losses Value (Dollars in Thousands) <S> <C> <C> <C> <C> United States Treasury securities $ 69,385 $ 18 $ (2,751) $ 66,652 Obligations of other United States Government agencies 4,999 17 (140) 4,876 Obligations of state and political subdivisions 5,817 170 (5) 5,982 Other marketable equity securities, at lower of cost or market 4,400 --- (223) 4,177 Federal Reserve Bank stock 85 --- --- 85 Federal Home Loan Bank stock 827 --- --- 827 Total $ 85,513 $ 205 $ (3,119) $ 82,599 </TABLE> Investment securities carried at $33.4 million and $29.1 million, at December 31, 1995 and 1994, respectively, were pledged to secure public deposits and securities sold under agreements to repurchase and for other purposes required or permitted by law. The amortized cost and approximate market values of investment securities at December 31, 1995 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. <TABLE> <CAPTION> December 31, 1995 Available-For Sale Held-To-Maturity Amortized Market Amortized Market Cost Value Cost Value (Dollars in Thousands) <S> <C> <C> <C> <C> Due in one year or less $ 19,703 $ 19,788 $ --- $ --- Due after one year through five years 38,401 38,826 8,020 8,048 Due after five years through ten years 6,826 7,055 7,000 7,039 Due after ten years 6,558 6,742 --- --- Total debt securities 71,488 72,411 15,020 15,087 Other securities without stated maturity 5,313 5,193 --- --- Total investment securities $ 76,801 $ 77,604 $ 15,020 $ 15,087 </TABLE> The proceeds from the sales and maturities of investment securities, and the related realized gains and losses are shown below: <TABLE> <CAPTION> 1995 1994 1993 (Dollars in Thousands) <S> <C> <C> <C> Proceeds from sales and maturities of investments $ 25,315 $ 20,910 $ 14,502 Realized gains $ 9 $ 411 $ 19 Realized losses --- (4) --- Net gains $ 9 $ 407 $ 19 </TABLE> NOTE 3. LOANS <TABLE> At December 31, loans before allowance for loan losses consisted of: <CAPTION> 1995 1994 (Dollars in Thousands) <S> <C> <C> Commercial and other $ 20,636 $ 17,806 Real estate - construction 4,093 1,991 Real estate - mortgage 109,469 105,703 Installment loans to individuals 50,854 43,487 Tax exempt loans 3,003 4,754 Total $ 188,055 $ 173,741 </TABLE> <TABLE> Information concerning loans which are contractually past due or in non-accrual status is as follows: <CAPTION> 1995 1994 (Dollars In Thousands) <S> <C> <C> Contractually past due loans - past due 90 days or more and still accruing interest $ 248 $ 837 Loans which are in non- accrual status $ 2,447 $ 2,955 </TABLE> The Bank has had, and may be expected to have in the future, banking transactions in the ordinary course of business with directors, executive officers, their immediate families, and companies in which they are principal owners (commonly referred to as related parties), on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others. The aggregate direct and indirect loans of these persons totaled $1.2 million and $1.5 million at December 31, 1995 and 1994, 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, 1995. NOTE 4. ALLOWANCE FOR LOAN LOSSES <TABLE> Changes in the allowance for loan losses are as follows: <CAPTION> 1995 1994 1993 (Dollars in Thousands) <S> <C> <C> <C> Balance, beginning of year $ 2,647 $ 2,692 $ 3,719 Recoveries 499 541 310 Provision for loan losses 825 25 250 Loans charged off (1,720) (611) (1,587) Balance, end of year $ 2,251 $ 2,647 $ 2,692 </TABLE> NOTE 5. PREMISES AND EQUIPMENT At December 31, premises and equipment consisted of: <TABLE> <CAPTION> 1995 1994 (Dollars in Thousands) <S> <C> <C> Land $ 1,514 $ 1,995 Buildings 6,748 5,727 Leasehold improvements 855 885 Furniture, fixtures and equipment 7,869 6,767 Total cost 16,986 15,374 Less accumulated depreciation and amortization 8,684 7,941 Net book value $ 8,302 $ 7,433 </TABLE> NOTE 6. OTHER REAL ESTATE OWNED Other real estate owned consisted of the following at December 31: <TABLE> <CAPTION> 1995 1994 (Dollars in Thousands) <S> <C> <C> Foreclosed real estate $ 600 $ 214 Property held for sale 354 --- Total $ 954 $ 214 </TABLE> NOTE 7. INDEBTEDNESS The Bank's short-term borrowings include federal funds purchased, securities sold under repurchase agreements (including $2.5 million to directors) 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 federal funds rate. NOTE 8. STOCK OPTION PLAN The Company has stock option plans with 59,250 shares of common stock reserved for options to key employees. Option prices are the fair market value of the common stock on the date the options were granted. Details of the number of shares and average prices are as follows: <TABLE> <CAPTION> 1995 1994 1993 <S> <C> <C> <C> Under option, beginning of year 45,505 33,560 51,508 Granted 2,702 20,285 5,000 Exercised (15,220) (8,340) (22,948) Expired (750) --- --- Under option, end of year 32,237 45,505 33,560 Available to grant, end of year 27,013 29,715 50,000 </TABLE> <TABLE> Average Prices <CAPTION> 1995 1994 1993 <S> <C> <C> <C> Granted during the year $ --- $ 36.25 $ 25.00 Exercised during the year $ 19.54 $ 18.76 $ 17.01 Under option, end of year $ 32.82 $ 28.19 $ 20.97 </TABLE> NOTE 9. INCOME TAXES The components of income tax expense are as follows: <TABLE> <CAPTION> 1995 1994 1993 (Dollars in Thousands) <S> <C> <C> <C> Currently payable $ 572 $ 1,039 $ 327 Deferred 225 97 340 Reported tax expense $ 797 $ 1,136 $ 667 </TABLE> The items that caused timing differences affecting deferred income taxes are as follows: <TABLE> <CAPTION> 1995 1994 1993 (Dollars in Thousands) <S> <C> <C> <C> Provision for loan losses $ 222 $ 51 $ 384 Other writedowns and adjustments --- 86 12 Pension plan expenses 15 30 18 Deferred loan fees, net 27 (12) 22 Security gains and losses 3 (2) (5) Interest on certain non-accrual loans (77) (124) (66) Alternative minimum taxes --- 51 (136) Adoption of Statement on Financial Accounting Standards No. 109 --- --- 99 Other 35 17 12 $ 225 $ 97 $ 340 </TABLE> A reconciliation of the "expected" Federal income tax expense on income before income taxes with the reported income tax expense follows: <TABLE> <CAPTION> 1995 1994 1993 (Dollars in Thousands) <S> <C> <C> <C> Expected tax expense (34%) $ 1,067 $ 1,329 $ 980 Interest expense on tax exempt assets 25 18 24 Tax exempt interest (263) (240) (303) Alternative minimum tax --- 51 (85) Disqualified incentive stock options (47) (44) (50) Adoption of Statement on Financial Accounting Standards No. 109 --- --- 99 Other, net 15 22 2 Reported tax expense $ 797 $ 1,136 $ 667 </TABLE> The components of the net deferred tax asset included in other assets are as follows at December 31: <TABLE> <CAPTION> 1995 1994 (Dollars in thousands) <S> <C> <C> Components of Deferred Tax Liability Depreciation $ (64) $ (31) Accretion of discounts on securities (22) (19) Net unrealized (gain) on available for sale securities (273) --- Deferred loan fees and costs (46) (19) Other (4) (5) Deferred tax liability (409) (74) Components of Deferred Tax Asset Allowance for loan losses 358 580 Net unrealized loss on available for sale securities --- 991 Interest on non-accrual loans 319 241 Deferred compensation 18 23 Pension 56 71 Deferred tax asset, net $ 342 $1,832 </TABLE> NOTE 10. LEASE COMMITMENTS The Bank has noncancellable leases on premises and equipment expiring at various dates, including extensions to the year 2011. Certain leases provide for increased annual payments based on increases in real estate taxes and the Consumer Price Index. The total approximate minimum rental commitment at December 31, 1995, under noncancellable leases is $544 thousand which is due as follows: Year (Dollars in Thousands) 1996 $ 104 1997 94 1998 93 1999 80 2000 31 Remaining term of leases 142 Total $ 544 The aggregate rental expense of premises and equipment was $165 thousand, $178 thousand and $140 thousand for 1995, 1994 and 1993, respectively. NOTE 11. PENSION PLAN The following table sets forth the Pension Plan's funded status and amounts recognized in the Bank's financial statements at December 31: 1995 1994 (Dollars in Thousands) Actuarial present value of benefit obligations: Vested benefits $ (1,533) $ (1,556) Accumulated benefit obligation $ (1,628) $ (1,605) Projected benefit obligation $ (2,289) $ (2,332) Plan assets at fair value 1,661 2,058 Projected benefit obligation in excess of plan assets (628) (274) Unrecognized net plan asset (75) (88) Net deferrals 537 153 Pension plan liability included in consolidated balance sheets $ (166) $ (209) Net pension cost includes the following components: Service cost - benefits earned in the current period $ 134 $ 125 Interest cost on projected benefit obligations 149 153 Return on plan assets (98) (131) Recognition of unrecognized net plan asset (12) (13) Amortization of net deferrals 31 6 Net pension cost $ 204 $ 140 Contributions to the Plan $ 248 $ 229 The actuarial present value of benefits and obligations were determined by use of the following assumptions: 1995 1994 Discount rate 7.5% 7.5% Compensation increase 5.0% 6.5% Expected long term rate of return on assets 7.5% 7.5% NOTE 12. PROFIT SHARING The Bank has a defined contribution profit sharing and thrift plan covering substantially all of its employees. The Bank may make profit sharing contributions to the plan as determined by the Board of Directors. In addition, the Bank matches thrift contributions by employees fifty cents for each dollar contributed. Expenses related to the plan totaled $215 thousand and $196 thousand in 1995 and 1994, respectively. NOTE 13. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Bank makes various commitments and incurs certain contingent liabilities. These commitments and contingencies represent off-balance sheet risk for the Bank. To meet the financing needs of its customers, the Bank makes lending commitments under commercial lines of credit, home equity loans and construction and development loans. The Bank also incurs contingent liabilities related to irrevocable letters of credit. At December 31, 1995, the Bank had the following off-balance sheet items (in thousands): Commitments to extend credit: Home equity lines of credit $ 8,965 Construction and development loans committed but not funded 7,106 Other lines of credit(principally commercial) 12,374 $ 28,445 Irrevocable letters of credit $ 1,212 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 extension 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 arrangements. Most guarantees extend for less than two years and expire in decreasing amounts through 1997. 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 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Bank's financial instruments at December 31, 1995 are as follows: Carrying Fair Amount Value (Dollars in Thousands) Cash and due from banks $ 10,932 $ 10,932 Investment securities, held to maturity 15,020 15,087 Investment securities, available for sale 77,604 77,604 Federal funds sold 513 513 Loans, net of allowances for loan losses 185,804 186,922 Deposits: Non-interest bearing deposits 42,902 42,902 Savings deposits 95,805 95,805 Certificates of Deposit 117,828 118,385 Securities sold under repurchase agreement and federal funds purchased 15,736 15,736 Interest bearing U.S. Treasury demand notes and other liabilities for borrowed money 560 560 Commitments to extend credit 28,445 28,445 Irrevocable letters of credit 1,212 1,212 The above presentation of fair values is required by statement on 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 instruments. The carrying amounts of cash and due from banks, federal funds sold, demand and savings deposit 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 market value approximates carrying value. Investment securities are valued at the quoted market price for the individual securities held. The fair value of loans is estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers. Certificates of deposit are presented at estimated fair value using rates currently offered for deposits of similar remaining maturities. NOTE 15. REGULATORY MATTERS The Company is required to maintain minimum amounts of capital to total "risk weighted" assets, as defined by the banking regulators. At December 31, 1995, The Company is required to have minimum Tier 1 and Total Capital ratios of 4.00% and 8.00% respectively. The Company's actual ratios at that date were 15.47% and 16.47%, respectively. The Company's leverage ratio at December 31, 1995 was 9.80%. 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 1996, without the approval of the Comptroller of the Currency, $3.40 million plus an additional amount equal to the Bank's retained net profits for 1996 up to the date of any dividend declaration. The following are the summarized financial statements of the Company. OLD POINT FINANCIAL CORPORATION PARENT ONLY BALANCE SHEETS As of December 31, 1995 1994 1993 Dollars in thousands ASSETS Cash in bank $ 122 $ 154 $ 132 Investment securities 1,670 1,438 646 Total Loans 52 54 56 Investment in subsidiary 28,396 24,507 24,425 Other real estate owned 0 0 435 Other assets 88 68 142 TOTAL ASSETS $30,328 $26,221 $25,836 LIABILITIES AND STOCKHOLDERS EQUITY Notes payable - bank $ --- $ --- $ --- Other liabilities --- --- --- Total liabilities --- --- --- Stockholders' equity 30,328 26,221 25,836 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $30,328 $26,221 $25,836 OLD POINT FINANCIAL CORPORATION PARENT ONLY INCOME STATEMENTS For the year ended December 31, 1995 1994 1993 Dollars in thousands INCOME Cash dividends from subsidiary $1,000 $ 950 $ 675 Interest and Fees on Loans 4 5 1 Interest income from investment securities 96 63 32 Other income --- --- 27 TOTAL INCOME 1,100 1,018 735 EXPENSES Interest on borrowed money --- --- 9 Other expenses 274 244 258 TOTAL EXPENSES 274 244 267 Income before taxes and undistributed net income of subsidiary 826 774 468 Income tax (59) (60) (70) Net income before undistributed net income ofsubsidiary 885 834 538 Undistributed net income of subsidiary 1,457 1,939 1,677 NET INCOME $2,342 $2,773 2,215 OLD POINT FINANCIAL CORPORATION PARENT ONLY STATEMENTS OF CASH FLOWS For the year ending December 31, 1995 1994 1993 Dollars in thousands CASH FLOWS FROM OPERATING ACTIVITIES Net income $2,342 $2,773 $2,215 Adjustment to reconcile net income to net cash provided by operating activities: Equity in undistributed (income) losses of subsidiaries (1,457) (1,939) (1,677) Market write-down on other real estate owned --- --- 65 Increase (decrease) in other assets (17) 95 (71) Increase (decrease) in other liabilities --- --- (12) Net cash provided by operating activities 868 929 520 CASH FLOWS FROM INVESTING ACTIVITIES (Purchases)/Sales of Investments (192) (850) 125 Purchase of Premises and Equipment (21) --- --- (Increase) decrease in other real estate owned --- 435 250 Loans to Customers 2 2 (56) Net cash (used in) investing activities (211) (413) 319 CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in borrowed money --- --- (180) Proceeds from issuance of common stock 88 200 70 Dividends paid (777) (694) (624) Net cash provided by financing activities (689) (494) (734) Net increase in cash and due from banks (32) 22 105 Cash and due from banks at beginning of period 154 132 27 Cash and due from banks at end of period $122 $154 $132 Accounting Rule Changes None. Regulatory Requirements and Restrictions For the reserve maintenance period in effect at December 31, 1995, 1994 and 1993 the bank was required to maintain with the Federal Reserve Bank of Richmond an average daily balance totalling approximately $ 4.6 million, $4.9 million, and $4.6 million respectively. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant The twelve persons named below, all of whom currently serve as directors of the Company will be nominated to serve as directors until the 1996 Annual Meeting, or until their successors have been duly elected and have qualified. <TABLE> <CAPTION> Principal Amount and Nature of Occupation Beneficial Ownership Director For Past As of March 14, 1995 Name and (Age) Since <F1> Five Years (Percent of Class)<F2> <S> <C> <C> <C> Dr. Richard F. Clark (63) 1981 Pathologist 30,589 <F3> Sentara Hampton 2.4% General Hospital Gertrude S. Dixon (82) 1981 Real Estate Management 96,062 <F3> and Ownership 7.5% Russell Smith Evans Jr. (53) 1993 Assistant Treasurer and 715 <F3><F5> Corporate Fleet Manager Ferguson Enterprises G. Royden Goodson, III (40) 1994 President 2,450 <F3><F5> Warwick Plumbing & Heating Corp. Arthur D. Greene (51) 1994 Surgeon - Partner 1,000 <F5> Tidewater Orthopaedic Associates Stephen D. Harris (54) 1988 Attorney-at-Law - Partner 4,175 <F5> Geddy, Harris & Geddy John Cabot Ishon (49) 1989 President 6,290 <F3><F5> Hampton Stationery Eugene M. Jordan (72) 1964 Attorney-at-Law 13,890 <F3> Jordan, Ishon & Jordan, P.C. 1.1% John B. Morgan, II (49) 1994 Vice President 1,200 <F3><F5> Morgan-Marrow Insurance Dr. H. Robert Schappert (57) 1996 Veterinarian - Owner 44,870 <F3> Beechmont Veterinary Hospital 3.5% John G. Sebrell (48) 1992 President & CEO 14,647 <F4> The Old Point National 1.1% Bank of Phoebus Robert F. Shuford (58) 1965 Chairman of the Board, 70,579 <F3><F4> President & CEO 5.5% Old Point Financial Corporation <FN> <F1> Refers to the year in which the individual first became a director of the Bank. Dr. Richard F. Clark, Gertrude S. Dixon, Eugene M. Jordan, and Robert F. Shuford became directors of the Company upon consummation of the Bank's reorganization on October 1, 1984. Russell Smith Evans, Jr. was elected April 27, 1993, G. Royden Goodson, III was elected on August 9, 1994, Dr. Arthur D. Greene was elected on August 9, 1994, John B. Morgan, II was elected on October 11, 1994, Stephen D. Harris was elected October 11, 1988, John Cabot Ishon was elected March 27, 1990, John G. Sebrell was elected August 11, 1992, and Dr. H. Robert Schappert was elected February 13, 1996. All present directors of the Company are directors of the Bank. <F2> For purposes of this table, beneficial ownership has been determined in accordance with the provisions of Rule 13d-3 of the Securities Exchange Act of 1934 under which, in general, a person is deemed to be the beneficial owner of a security if he or she has or shares the power to vote or direct the voting of the security or the power to dispose of or direct the disposition of the security, or if he or she has the right to acquire beneficial ownership of the security within sixty days. <F3> Includes shares held (i) by their close relatives or held jointly with their spouses, (ii) as custodian or trustee for the benefit of their children or others, or (iii) as attorney-in-fact subject to a general power of attorney - Dr. Clark, 54 shares; Mrs. Dixon, 48,740 shares; Mr. Evans, 315 shares; Mr. Goodson, 1,900 shares; Mr. Ishon, 1,640 shares; Mr. Jordan, 8,485 shares; Mr. Morgan, 1,000 shares; Dr. Schappert, 40,685 shares; and Mr. Shuford, 39,266 shares. <F4> Includes shares that may be acquired within 60 days pursuant to the exercise of stock options granted under the Old Point Stock Option Plans - Mr. Sebrell 12,977 and Mr. Shuford 2,750. <F5> Represents less than 1.0% of total outstanding shares. </FN> </TABLE> There are two family relationships among the directors and executive officers. Mr. Jordan is the father-in-law of Mr. Ishon. Mr. Shuford and Dr. Schappert are married to sisters. None of the directors serves as a director of any other company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. There were no delinquent Securities and Exchange Form 4 filings during 1995. In addition to the 2 executive officers included in the preceding list of directors, the persons listed below were executive officers of the Company or its subsidiary as of December 31, 1995. Executive Principal Officer Occupation For Name and (Age) Since (1) Past Five Years Louis G. Morris (41) 1988 Senior Vice President and Treasurer Old Point Financial Corporation Cary B. Epes (47) 1993 Senior Vice President Old Point Financial Corporation W. Rodney Rosser (55) 1989 Senior Vice President and Secretary Old Point Financial Corporation Margaret P. Causby (45) 1992 Senior Vice President Old Point National Bank Patricia A. Orendorff (49) 1994 Senior Vice President and Cashier Old Point National Bank Each of these executive officers owns less than 1% of the stock of the Company. (1) Prior to employment with the Company, Cary B. Epes was Vice President and Commercial Account Manager at Crestar Bank. All other executive officers served in virtually the same capacity with the Company and/or the Bank prior to appointment as an executive officer. Item 11. Executive Compensation Cash Compensation The following table presents all compensation paid or accrued by the Company and the Bank to the Company's Chief Executive Officer and each executive officer whose salary and bonus for 1995 exceeds $100,000. Mr. Robert F. Shuford is compensated by the Company and Mr. John G. Sebrell is compensated by the Bank. <TABLE> SUMMARY COMPENSATION TABLE <CAPTION> Annual Compensation Other Name Annual All Other and Compen- Compen- Principal Salary Bonus sation sation Position Year ($) ($) ($) ($) <S> <C> <C> <C> <C> <C> Robert F. Shuford 1995 $147,900 <F1> $ 0 $ 2,891 $55,053 <F3> Holding Company 1994 $143,400 <F1> $ 6,000 <F2> $ 2,941 $42,610 <F3> Chairman, President 1993 $138,100 <F1> $ 4,000 $ 3,233 $65,655 <F3> & CEO John G. Sebrell 1995 $113,900 <F1> $ 0 $ 8,047 $ 6,369 <F4> Bank 1994 $110,400 <F1> $12,244 <F2> $ 8,631 $ 5,682 President & CEO 1993 $105,100 <F1> $ 8,000 $11,119 $ 0 <FN> <F1> Salary includes directors' fees as follows: Mr. Shuford - 1995 of $3,900, 1994 of $5,400, and 1993 of $5,100; Mr. Sebrell - 1995 of $3,900, 1994 of $5,400, and 1993 of $5,100. <F2> In 1994, bonus consideration for Mr. Shuford and Mr. Sebrell was deferred until January of the following year so that year end results could be evaluated by the Compensation Committee. <F3> Mr. Shuford has received other compensation as follows: 1995 1994 1993 Profit Sharing $ 3,233 $ 3,001 $2,592 401-K Matching Plan 4,320 4,149 3,990 Split Dollar Life Insurance 24,750 1,460 1,323 Sale of ISO * 22,750 34,000 57,750 Total $55,053 $42,610 $65,655 * The Split Dollar policy was awarded to Mr. Shuford in 1995. When this occurs the gain must be treated as compensation to the employee. * When an incentive stock option (ISO) share is sold prior to a one year vesting period, the gain on the sale is treated as compensation to the employee. <F4> Mr. Sebrell has received other compensation as follows: 1995 1994 1993 Profit Sharing $ 2,469 $ 2,285 $ 0 401-K Matching Plan 3,300 3,159 0 Split Dollar Life Insurance 600 238 0 Total $ 6,369 $ 5 682 $ 0 Mr. Sebrell was ineligible for participation in the profit sharing and 401-K Plan prior to 1994. </FN> </TABLE> Item 12. Security Ownership of Certain Beneficial Owners and Management Security ownership of certain beneficial owners and management is detailed in Part III, Item 10. of this Annual Report on Form 10-K. Item 13. Certain Relationships and Related Transactions Some of the Company directors, executive officers, and members of their immediate families, and corporations, partnerships and other entities of which such persons are officers, directors, partners, trustees, executors or beneficiaries, are customers of the Bank. As of December 31, 1995, borrowing by all policy making officers and directors amounted to $1.2 million. This amount represented 4.0% of the total equity capital accounts of the Company as of December 31, 1995. All loans and commitments to lend included in such transactions were made in the ordinary course of business, upon substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than normal risk of collectibility or present other unfavorable features. It is the policy of the Bank to provide loans to officers who are not executive officers and to employees at more favorable rates than those prevailing at the time for comparable transactions with other persons. These loans do not involve more than the normal risk of collectibility or present other unfavorable features. The Bank expects to have in the future similar banking transactions with directors, officers, principal stockholders and their associates. The law firm of Jordan, Ishon and Jordan, P.C. serves as legal counsel to the Bank. Mr. Eugene M. Jordan is a member of the firm. During 1995, the firm received from the Bank a retainer and fees totalling $67,696. Hampton Stationery, of which John Cabot Ishon is the owner, provided furniture and supplies to the Bank for which it paid $104,353 during 1995. Morgan-Marrow Company, of which John B. Morgan, II is President, provided insurance to the Bank, the total premiums of which were $195,802 during 1995. Geddy, Harris & Geddy, of which Stephen D. Harris is a partner, also provided legal services to the Bank during 1995. PART IV Item 14. 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 10-K. Consolidated Balance Sheets - December 31, 1995 and 1994 Consolidated Statements of Income Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Changes in Stockholders' Equity Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows Years Ended December 31, 1995, 1994 and 1993 Notes to Financial Statements Auditor's Report A.2 Financial Statement Schedules: Schedule Location Average Balance Sheets, Net Interest Income and Rates Part I, Item 1 Analysis of Change in Net Interest Income Part I, Item 1 Interest Sensitivity Analysis Part I, Item 1 Investment Securities Part I, Item 1 Investment Security Maturities & Yields Part I, Item 1 Loans Part I, Item 1 Maturity Schedule of Selected Loans Part I, Item 1 Nonaccrual, Past Due and Restructured Loans Part I, Item 1 Analysis of the Allowance for Loan Losses Part I, Item 1 Allocation of the Allowance for Loan Losses Part I, Item 1 Deposits Part I, Item 1 Certificates of Deposit of $100,000 and more Part I, Item 1 Return on Average Equity Part I, Item 1 Short Term Borrowings Part I, Item 1 Lease Commitments Part I, Item 1 Other Real Estate Owned Part I, Item 1 Selected Financial Data Part II, Item 6 Capital Ratios Part II, Item 7 Dividends Paid and Market Price of Common Stock Part II, Item 7 Proceeds from sales and maturities of securities Part II, Item 8 Premises and Equipment Part II, Item 8 Stock Option Plan Part II, Item 8 Components of Income Tax Expense Part II, Item 8 Reconciliation of Expected and Reported Income Tax Expense Part II, Item 8 Pension Plan Part II, Item 8 Commitments and Contingencies Part II, Item 8 Fair Value of Financial Instruments Part II, Item 8 Directors and Executive Officer Part III, Item 10 Executive Compensation Part III, Item 11 A.3 Exhibits: 3 Articles of Incorporation and Bylaws 4 Not Applicable 9 Not Applicable 10 Not Applicable 11 Not Applicable 12 Not Applicable 13 Not Applicable 18 Not Applicable 19 Not Applicable 22 Subsidiaries of the Registrant 23 Not Applicable 24 Consent of Independent Certified Public Accountants 25 Powers of Attorney 27 Financial Data Schedule 28 Not Applicable 29 Not Applicable B. Reports on Form 8-K: No Reports on Form 8-K were filed during the fourth quarter of 1995. Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 27th day of March, 1996. OLD POINT FINANCIAL CORPORATION /s/Robert F. Shuford Robert F. Shuford, President Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in their capacities on the 27th day of March, 1996. Signature Title /s/Robert F. Shuford President and Director Robert F. Shuford Principal Executive Officer /s/Louis G. Morris Senior Vice President Louis G. Morris and Treasurer Principal Financial & Accounting Officer /s/Richard F. Clark * Director /s/Gertrude S. Dixon * Director /s/Russell S. Evans, Jr. * Director /s/G. Royden Goodson, III Director /s/Dr. Arthur D. Greene Director /s/Steven D. Harris * Director /s/John Cabot Ishon * Director /s/Eugene M. Jordan * Director /s/John B. Morgan * Director /s/Dr. H. Robert Schappert * Director /s/John G. Sebrell * Executive Vice President and Director