UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549




FORM
10-Q





(Mark
One)


x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


For the
quarterly period ended March 31, 2010




or




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




For the
transition period from  to
_______




Commission
File Number:  000-12896





OLD
POINT FINANCIAL CORPORATION


(Exact
name of registrant as specified in its charter)





VIRGINIA
            54-1265373(State
      or other jurisdiction of
            (I.R.S.
      Employerincorporation
      or organization)
            Identification
      No.)





1
West Mellen Street, Hampton, Virginia  23663


(Address
of principal executive offices) (Zip Code)





(757)
728-1200


(Registrant's
telephone number, including area code)





Not
Applicable


(Former
name, former address and former fiscal year, if changed since last
report)





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


 ̈
Yes    ̈ No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Large
      accelerated filer  ̈
            Accelerated
      filer xNon-accelerated
      filer  ̈ (Do
      not check if a smaller reporting company)
            Smaller
      reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


 ̈ Yes x No





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.





4,925,910
shares of common stock ($5.00 par value) outstanding as of April 30,
2010







OLD
POINT FINANCIAL CORPORATION





FORM
10-Q





INDEX





PagePART
      I - FINANCIAL INFORMATIONItem
      1.
                          Financial
      Statements.
                          
                          1Consolidated
      Balance SheetsMarch
      31, 2010 (unaudited) and December 31, 2009
                          
                          1Consolidated
      Statements of OperationsThree
      months ended March 31, 2010 and 2009 (unaudited)
                          
                          2Consolidated
      Statements of Changes in Stockholders' EquityThree
      months ended March 31, 2010 and 2009 (unaudited)
                          
                          3Consolidated
      Statements of Cash FlowsThree
      months ended March 31, 2010 and 2009 (unaudited)
                          
                          4Notes
      to Consolidated Financial Statements (unaudited)
                          
                          5Item
      2.
                          Management's
      Discussion and Analysis of Financial Condition and Results
      of Operations.
                          
                          15Item
      3.
                          Quantitative
      and Qualitative Disclosures About Market Risk.
                          
                          25Item
      4.
                          Controls
      and Procedures.
                          
                          26PART
      II - OTHER INFORMATIONItem
      1.
                          Legal
      Proceedings.
                          
                          26Item
      1A.
                          Risk
      Factors.
                          
                          26Item
      2.
                          Unregistered
      Sales of Equity Securities and Use of Proceeds.
                          
                          26Item
      3.
                          Defaults
      Upon Senior Securities.
                          
                          26Item
      4.
                          [Removed
      and Reserved]
                          
                          26Item
      5.
                          Other
      Information.
                          
                          26Item
      6.
                          Exhibits.
                          
                          27




(i)





PART
I – FINANCIAL INFORMATION





Item
1.  Financial Statements.





Old
Point Financial Corporation and Subsidiaries


Consolidated
Balance Sheets





March
      31,
                    
                    
                    December
      31,2010
                    
                    
                    2009(unaudited)AssetsCash
      and due from banks
                    
                    $
                    11,990,803
                    
                    
                    $
                    13,223,901Federal
      funds sold
                    
                    
                    56,475,149
                    
                    
                    
                    34,412,097Cash
      and cash equivalents
                    
                    
                    68,465,952
                    
                    
                    
                    47,635,998Securities
      available-for-sale, at fair value
                    
                    
                    188,892,924
                    
                    
                    
                    173,774,953Securities
      held-to-maturity(fair
      value approximates $3,131,568 and $2,233,133)
                    
                    
                    3,112,000
                    
                    
                    
                    2,212,000Restricted
      securities
                    
                    
                    4,814,700
                    
                    
                    
                    4,814,700Loans,
      net of allowance for loan losses of $11,143,532 and
    $7,864,451
                    
                    
                    620,763,756
                    
                    
                    
                    627,378,089Premises
      and equipment, net
                    
                    
                    30,272,703
                    
                    
                    
                    30,397,444Bank
      owned life insurance
                    
                    
                    16,495,861
                    
                    
                    
                    16,290,838Foreclosed
      assets, net of valuation allowance of $745,000 and
$860,000
                    
                    
                    7,570,500
                    
                    
                    
                    7,623,500Other
      assets
                    
                    
                    11,475,510
                    
                    
                    
                    11,294,719$
                    951,863,906
                    
                    
                    $
                    921,422,241Liabilities
      & Stockholders' EquityDeposits:Noninterest-bearing
      deposits
                    
                    $
                    122,888,141
                    
                    
                    $
                    111,636,590Savings
      deposits
                    
                    
                    206,752,693
                    
                    
                    
                    205,647,611Time
      deposits
                    
                    
                    356,834,253
                    
                    
                    
                    345,216,588Total
      deposits
                    
                    
                    686,475,087
                    
                    
                    
                    662,500,789Federal
      funds purchased and other borrowings
                    
                    
                    1,312,958
                    
                    
                    
                    1,018,559Overnight
      repurchase agreements
                    
                    
                    52,664,621
                    
                    
                    
                    49,560,402Term
      repurchase agreements
                    
                    
                    63,864,042
                    
                    
                    
                    59,858,542Federal
      Home Loan Bank advances
                    
                    
                    65,000,000
                    
                    
                    
                    65,000,000Accrued
      expenses and other liabilities
                    
                    
                    2,033,063
                    
                    
                    
                    1,875,496Total
      liabilities
                    
                    
                    871,349,771
                    
                    
                    
                    839,813,788Commitments
      and contingenciesStockholders'
      equity:Common
      stock, $5 par value, 10,000,000 shares authorized;4,925,910
      and 4,916,535 shares issued
                    
                    
                    24,629,550
                    
                    
                    
                    24,582,675Additional
      paid-in capital
                    
                    
                    15,886,726
                    
                    
                    
                    15,768,840Retained
      earnings
                    
                    
                    41,058,825
                    
                    
                    
                    42,518,889Accumulated
      other comprehensive loss
                    
                    
                    (1,060,966
                    )
                    
                    
                    (1,261,951
                    )Total
      stockholders' equity
                    
                    
                    80,514,135
                    
                    
                    
                    81,608,453Total
      liabilities and equity
                    
                    $
                    951,863,906
                    
                    
                    $
                    921,422,241





See Notes
to Consolidated Financial Statements.




- 1
-





Old
Point Financial Corporation and Subsidiaries


Consolidated
Statements of Operations





Three
      Months EndedMarch
      31,2010
                  
                  
                  2009(unaudited)Interest
      and Dividend Income:Interest
      and fees on loans
                  
                  $
                  9,486,216
                  
                  
                  $
                  9,416,606Interest
      on federal funds sold
                  
                  
                  20,346
                  
                  
                  
                  13,257Interest
      on securities:Taxable
                  
                  
                  804,256
                  
                  
                  
                  659,582Tax-exempt
                  
                  
                  93,883
                  
                  
                  
                  159,314Dividends
      and interest on all other securities
                  
                  
                  10,786
                  
                  
                  
                  146,883Total
      interest and dividend income
                  
                  
                  10,415,487
                  
                  
                  
                  10,395,642Interest
      Expense:Interest
      on savings deposits
                  
                  
                  94,979
                  
                  
                  
                  94,691Interest
      on time deposits
                  
                  
                  1,860,927
                  
                  
                  
                  2,828,072Interest
      on federal funds purchased, securities sold underagreements
      to repurchase and other borrowings
                  
                  
                  178,325
                  
                  
                  
                  97,363Interest
      on Federal Home Loan Bank advances
                  
                  
                  829,625
                  
                  
                  
                  895,375Total
      interest expense
                  
                  
                  2,963,856
                  
                  
                  
                  3,915,501Net
      interest income
                  
                  
                  7,451,631
                  
                  
                  
                  6,480,141Provision
      for loan losses
                  
                  
                  4,700,000
                  
                  
                  
                  1,000,000Net
      interest income, after provision for loan losses
                  
                  
                  2,751,631
                  
                  
                  
                  5,480,141Noninterest
      Income:Income
      from fiduciary activities
                  
                  
                  820,885
                  
                  
                  
                  764,738Service
      charges on deposit accounts
                  
                  
                  1,314,677
                  
                  
                  
                  1,336,939Other
      service charges, commissions and fees
                  
                  
                  690,817
                  
                  
                  
                  612,374Income
      from bank owned life insurance
                  
                  
                  388,845
                  
                  
                  
                  176,015Gain
      on available-for-sale securities, net
                  
                  
                  76
                  
                  
                  
                  0Other
      operating income
                  
                  
                  82,548
                  
                  
                  
                  74,660Total
      noninterest income
                  
                  
                  3,297,848
                  
                  
                  
                  2,964,726Noninterest
      Expense:Salaries
      and employee benefits
                  
                  
                  4,531,082
                  
                  
                  
                  4,466,012Occupancy
      and equipment
                  
                  
                  1,099,383
                  
                  
                  
                  1,034,903FDIC
      insurance
                  
                  
                  329,276
                  
                  
                  
                  102,165Data
      processing
                  
                  
                  296,655
                  
                  
                  
                  249,250Customer
      development
                  
                  
                  222,299
                  
                  
                  
                  198,347Advertising
                  
                  
                  175,985
                  
                  
                  
                  171,494Loan
      expenses
                  
                  
                  122,290
                  
                  
                  
                  134,172Postage
      and courier expense
                  
                  
                  135,621
                  
                  
                  
                  137,203Employee
      professional development
                  
                  
                  142,900
                  
                  
                  
                  141,713Loss
      (gain) on write-down/sale of foreclosed assets
                  
                  
                  (46,260
                  )
                  
                  
                  67,316Other
                  
                  
                  725,382
                  
                  
                  
                  701,512Total
      noninterest expense
                  
                  
                  7,734,613
                  
                  
                  
                  7,404,087Income
      (loss) before income taxes
                  
                  
                  (1,685,134
                  )
                  
                  
                  1,040,780Income
      tax expense (benefit)
                  
                  
                  (739,507
                  )
                  
                  
                  271,076Net
      income (loss)
                  
                  $
                  (945,627
                  )
                  
                  $
                  769,704Basic
      Earnings (Loss) per Share:Average
      shares outstanding
                  
                  
                  4,920,108
                  
                  
                  
                  4,907,010Net
      income (loss) per share of common stock
                  
                  $
                  (0.19
                  )
                  
                  $
                  0.16Diluted
      Earnings (Loss) per Share:Average
      shares outstanding
                  
                  
                  4,933,582
                  
                  
                  
                  4,933,018Net
      income (loss) per share of common stock
                  
                  $
                  (0.19
                  )
                  
                  $
                  0.16





See Notes
to Consolidated Financial Statements.


- 2
-





Old Point Financial Corporation and
Subsidiaries


Consolidated
Statements of Changes in Stockholders' Equity





AccumulatedShares
      of
                        
                        
                        
                        
                        
                        Additional
                        
                        
                        
                        
                        
                        OtherCommon
                        
                        
                        Common
                        
                        
                        Paid-in
                        
                        
                        Retained
                        
                        
                        Comprehensive(unaudited)
                        
                        Stock
                        
                        
                        Stock
                        
                        
                        Capital
                        
                        
                        Earnings
                        
                        
                        Loss
                        
                        
                        TotalFOR
      THE THREE MONTHS ENDED MARCH 31, 2010Balance
      at beginning of period
                        
                        
                        4,916,535
                        
                        
                        $
                        24,582,675
                        
                        
                        $
                        15,768,840
                        
                        
                        $
                        42,518,889
                        
                        
                        $
                        (1,261,951
                        )
                        
                        $
                        81,608,453Comprehensive
      loss:Net
      loss
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        (945,627
                        )
                        
                        
                        0
                        
                        
                        
                        (945,627
                        )Unrealized
      holding gains arising during the period(net
      of tax, $103,512)
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        200,935
                        
                        
                        
                        200,935Reclassification
      adjustment (net of tax, $26)
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        50
                        
                        
                        
                        50Total
      comprehensive loss
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        (945,627
                        )
                        
                        
                        200,985
                        
                        
                        
                        (744,642
                        )Exercise
      of stock options
                        
                        
                        9,375
                        
                        
                        
                        46,875
                        
                        
                        
                        89,450
                        
                        
                        
                        (32,724
                        )
                        
                        
                        0
                        
                        
                        
                        103,601Disqualification
      of stock options
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        10,503
                        
                        
                        
                        0
                        
                        
                        
                        10,503Stock
      compensation expense
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        28,436
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        28,436Cash
      dividends ($0.10 per share)
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        (492,216
                        )
                        
                        
                        0
                        
                        
                        
                        (492,216
                        )Balance
      at end of period
                        
                        
                        4,925,910
                        
                        
                        $
                        24,629,550
                        
                        
                        $
                        15,886,726
                        
                        
                        $
                        41,058,825
                        
                        
                        $
                        (1,060,966
                        )
                        
                        $
                        80,514,135FOR
      THE THREE MONTHS ENDED MARCH 31, 2009Balance
      at beginning of period
                        
                        
                        4,905,229
                        
                        
                        $
                        24,526,145
                        
                        
                        $
                        15,506,322
                        
                        
                        $
                        43,250,906
                        
                        
                        $
                        (385,463
                        )
                        
                        $
                        82,897,910Comprehensive
      income:Net
      income
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        769,704
                        
                        
                        
                        0
                        
                        
                        
                        769,704Unrealized
      holding losses arising during the period(net
      of tax benefit, $150,616)
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        (292,373
                        )
                        
                        
                        (292,373
                        )Total
      comprehensive income
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        769,704
                        
                        
                        
                        (292,373
                        )
                        
                        
                        477,331Exercise
      of stock options
                        
                        
                        2,812
                        
                        
                        
                        14,060
                        
                        
                        
                        35,253
                        
                        
                        
                        (21,719
                        )
                        
                        
                        0
                        
                        
                        
                        27,594Stock
      compensation expense
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        27,569
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        27,569Cash
      dividends ($0.17 per share)
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        (834,367
                        )
                        
                        
                        0
                        
                        
                        
                        (834,367
                        )Balance
      at end of period
                        
                        
                        4,908,041
                        
                        
                        $
                        24,540,205
                        
                        
                        $
                        15,569,144
                        
                        
                        $
                        43,164,524
                        
                        
                        $
                        (677,836
                        )
                        
                        $
                        82,596,037





See Notes
to Consolidated Financial Statements.




- 3
-





Old
Point Financial Corporation and Subsidiaries


Consolidated Statements of Cash Flows





Three
      Months EndedMarch
      31,2010
                    
                    
                    2009(unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income (loss)
                    
                    $
                    (945,627
                    )
                    
                    $
                    769,704Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Depreciation
      and amortization
                    
                    
                    500,371
                    
                    
                    
                    458,359Provision
      for loan losses
                    
                    
                    4,700,000
                    
                    
                    
                    1,000,000Net
      gain on sale of available-for-sale securities
                    
                    
                    (76
                    )
                    
                    
                    0Net
      accretion and amortization of securities
                    
                    
                    4,625
                    
                    
                    
                    (1,792
                    )Net
      (gain) loss on disposal of premises and equipment
                    
                    
                    207
                    
                    
                    
                    (648
                    )Net
      (gain) loss on write-down/sale of foreclosed assets
                    
                    
                    (46,260
                    )
                    
                    
                    67,316Income
      from bank owned life insurance
                    
                    
                    (388,845
                    )
                    
                    
                    (176,015
                    )Stock
      compensation expense
                    
                    
                    28,436
                    
                    
                    
                    27,569Deferred
      tax (benefit) expense
                    
                    
                    14,025
                    
                    
                    
                    (170,000
                    )Increase
      in other assets
                    
                    
                    (551,533
                    )
                    
                    
                    (922,901
                    )Increase
      in other liabilities
                    
                    
                    157,567
                    
                    
                    
                    929,340Net
      cash provided by operating activities
                    
                    
                    3,472,890
                    
                    
                    
                    1,980,931CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of available-for-sale securities
                    
                    
                    (58,478,191
                    )
                    
                    
                    (66,665,868
                    )Purchases
      of held-to-maturity securities
                    
                    
                    (1,200,000
                    )
                    
                    
                    0Purchases
      of restricted securities
                    
                    
                    0
                    
                    
                    
                    (23,650
                    )Proceeds
      from maturities and calls of securities
                    
                    
                    37,273,195
                    
                    
                    
                    25,116,192Proceeds
      from sales of available-for-sale securities
                    
                    
                    6,687,000
                    
                    
                    
                    1,350,000Decrease
      in loans made to customers
                    
                    
                    1,914,333
                    
                    
                    
                    7,318,522Proceeds
      from sales of foreclosed assets
                    
                    
                    536,260
                    
                    
                    
                    540,591Purchases
      of premises and equipment
                    
                    
                    (375,837
                    )
                    
                    
                    (1,573,015
                    )Net
      cash used in investing activities
                    
                    
                    (13,643,240
                    )
                    
                    
                    (33,937,228
                    )CASH
      FLOWS FROM FINANCING ACTIVITIESIncrease
      (decrease) in noninterest-bearing deposits
                    
                    
                    11,251,551
                    
                    
                    
                    (8,286,689
                    )Increase
      (decrease) in savings deposits
                    
                    
                    1,105,082
                    
                    
                    
                    (2,731,485
                    )Increase
      in time deposits
                    
                    
                    11,617,665
                    
                    
                    
                    9,866,759Increase
      in federal funds purchased, repurchase agreements andother
      borrowings
                    
                    
                    7,404,118
                    
                    
                    
                    46,402,099Proceeds
      from exercise of stock options
                    
                    
                    103,601
                    
                    
                    
                    27,595Disqualification
      of stock options
                    
                    
                    10,503
                    
                    
                    
                    0Cash
      dividends paid on common stock
                    
                    
                    (492,216
                    )
                    
                    
                    (834,367
                    )Net
      cash provided by financing activities
                    
                    
                    31,000,304
                    
                    
                    
                    44,443,912Net
      increase in cash and cash equivalents
                    
                    
                    20,829,954
                    
                    
                    
                    12,487,615Cash
      and cash equivalents at beginning of period
                    
                    
                    47,635,998
                    
                    
                    
                    47,324,713Cash
      and cash equivalents at end of period
                    
                    $
                    68,465,952
                    
                    
                    $
                    59,812,328SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCash
      payments for:Interest
                    
                    $
                    3,030,651
                    
                    
                    $
                    3,838,331SUPPLEMENTAL
      SCHEDULE OF NONCASH TRANSACTIONSUnrealized
      gain (loss) on investment securities
                    
                    $
                    304,523
                    
                    
                    $
                    (442,989
                    )Loans
      transferred to foreclosed assets
                    
                    $
                    437,000
                    
                    
                    $
                    1,012,445





See Notes
to Consolidated Financial Statements.




- 4
-




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)





Note
1.  General


The
accompanying unaudited consolidated financial statements of Old Point Financial
Corporation (the Company) and its subsidiaries have been prepared in accordance
with U.S. generally accepted accounting principles (GAAP) for interim financial
information.  All significant intercompany balances and transactions
have been eliminated.  In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments and
reclassifications of a normal and recurring nature considered necessary to
present fairly the financial positions at March 31, 2010 and December 31, 2009,
the results of operations, statements of cash flows and changes in stockholders’
equity for the three months ended March 31, 2010 and 2009. The results of
operations for the interim periods are not necessarily indicative of the results
that may be expected for the full year.





These
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 2009 annual
report on Form 10-K. Certain previously reported amounts have been reclassified
to conform to current period presentation.





Available
Information


The
Company maintains a website on the Internet at www.oldpoint.com.  The
Company makes available free of charge, on or through its website, its proxy
statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and any amendments to those reports as soon as reasonably
practicable after such material is electronically filed with the Securities and
Exchange Commission (SEC).  The information available on the Company’s
Internet website is not part of this Form 10-Q or any other report filed by the
Company with the SEC.  The public may read and copy any documents the
Company files at the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C.  20549.  The public may obtain information
on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.  The Company’s SEC filings can also be obtained on the
SEC’s website on the Internet at www.sec.gov.





Note
2.  Securities


Amortized
costs and fair values of securities held-to-maturity are as
follows:





Gross
                  
                  
                  GrossAmortized
                  
                  
                  Unrealized
                  
                  
                  Unrealized
                  
                  
                  FairCost
                  
                  
                  Gains
                  
                  
                  Losses
                  
                  
                  Value(in thousands)March
      31, 2010Obligations
      of  U.S. Government agencies
                  
                  $
                  2,700
                  
                  
                  $
                  5
                  
                  
                  $
                  (8
                  )
                  
                  $
                  2,697Obligations
      of state and political subdivisions
                  
                  
                  412
                  
                  
                  
                  23
                  
                  
                  
                  0
                  
                  
                  
                  435Total
                  
                  $
                  3,112
                  
                  
                  $
                  28
                  
                  
                  $
                  (8
                  )
                  
                  $
                  3,132December
      31, 2009Obligations
      of  U.S. Government agencies
                  
                  $
                  1,800
                  
                  
                  $
                  4
                  
                  
                  $
                  (7
                  )
                  
                  $
                  1,797Obligations
      of state and political subdivisions
                  
                  
                  412
                  
                  
                  
                  24
                  
                  
                  
                  0
                  
                  
                  
                  436Total
                  
                  $
                  2,212
                  
                  
                  $
                  28
                  
                  
                  $
                  (7
                  )
                  
                  $
                  2,233




- 5
-


Amortized
costs and fair values of securities available-for-sale are as
follows:





Gross
                      
                      
                      GrossAmortized
                      
                      
                      Unrealized
                      
                      
                      Unrealized
                      
                      
                      FairCost
                      
                      
                      Gains
                      
                      
                      Losses
                      
                      
                      Value(in thousands)March
      31, 2010U.S.
      Treasury securities
                      
                      $
                      400
                      
                      
                      $
                      0
                      
                      
                      $
                      0
                      
                      
                      $
                      400Obligations
      of  U.S. Government agencies
                      
                      
                      178,932
                      
                      
                      
                      603
                      
                      
                      
                      (387
                      )
                      
                      
                      179,148Obligations
      of state and political subdivisions
                      
                      
                      6,850
                      
                      
                      
                      113
                      
                      
                      
                      0
                      
                      
                      
                      6,963Mortgage-backed
      securities
                      
                      
                      1,161
                      
                      
                      
                      24
                      
                      
                      
                      0
                      
                      
                      
                      1,185Money
      market investments
                      
                      
                      1,197
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      1,197Total
                      
                      $
                      188,540
                      
                      
                      $
                      740
                      
                      
                      $
                      (387
                      )
                      
                      $
                      188,893December
      31, 2009U.S.
      Treasury securities
                      
                      $
                      400
                      
                      
                      $
                      0
                      
                      
                      $
                      0
                      
                      
                      $
                      400Obligations
      of  U.S. Government agencies
                      
                      
                      161,645
                      
                      
                      
                      341
                      
                      
                      
                      (446
                      )
                      
                      
                      161,540Obligations
      of state and political subdivisions
                      
                      
                      8,702
                      
                      
                      
                      124
                      
                      
                      
                      (1
                      )
                      
                      
                      8,825Mortgage-backed
      securities
                      
                      
                      1,273
                      
                      
                      
                      31
                      
                      
                      
                      0
                      
                      
                      
                      1,304Money
      market investments
                      
                      
                      1,706
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      1,706Total
                      
                      $
                      173,726
                      
                      
                      $
                      496
                      
                      
                      $
                      (447
                      )
                      
                      $
                      173,775




Temporarily
Impaired Securities


The
following tables show the gross unrealized losses and fair value of the
Company’s investments with unrealized losses that are not deemed to be
other-than-temporarily impaired, aggregated by investment category and length of
time that individual securities have been in a continuous unrealized loss
position:





March
      31, 2010Less
      Than Twelve Months
                              
                              
                              More
      Than Twelve Months
                              
                              
                              TotalGross
                              
                              
                              
                              
                              
                              Gross
                              
                              
                              
                              
                              
                              GrossUnrealized
                              
                              
                              Fair
                              
                              
                              Unrealized
                              
                              
                              Fair
                              
                              
                              Unrealized
                              
                              
                              FairLosses
                              
                              
                              Value
                              
                              
                              Losses
                              
                              
                              Value
                              
                              
                              Losses
                              
                              
                              Value(in
      thousands)Securities
      Available-for-SaleDebt
      securities:Obligations
      of U.S. Government agencies
                              
                              $
                              387
                              
                              
                              $
                              77,856
                              
                              
                              $
                              0
                              
                              
                              $
                              0
                              
                              
                              $
                              387
                              
                              
                              $
                              77,856Securities
      Held-to-MaturityObligations
      of U.S. Government agencies
                              
                              $
                              8
                              
                              
                              $
                              1,492
                              
                              
                              $
                              0
                              
                              
                              $
                              0
                              
                              
                              $
                              8
                              
                              
                              $
                              1,492Total
                              
                              $
                              395
                              
                              
                              $
                              79,348
                              
                              
                              $
                              0
                              
                              
                              $
                              0
                              
                              
                              $
                              395
                              
                              
                              $
                              79,348




- 6
-





December
      31, 2009Less
      Than Twelve Months
                      
                      
                      More
      Than Twelve Months
                      
                      
                      TotalGross
                      
                      
                      
                      
                      
                      Gross
                      
                      
                      
                      
                      
                      GrossUnrealized
                      
                      
                      Fair
                      
                      
                      Unrealized
                      
                      
                      Fair
                      
                      
                      Unrealized
                      
                      
                      FairLosses
                      
                      
                      Value
                      
                      
                      Losses
                      
                      
                      Value
                      
                      
                      Losses
                      
                      
                      Value(in
      thousands)Securities
      Available-for-SaleDebt
      securities:Obligations
      of U. S. Government agencies
                      
                      $
                      446
                      
                      
                      $
                      49,589
                      
                      
                      $
                      0
                      
                      
                      $
                      0
                      
                      
                      $
                      446
                      
                      
                      $
                      49,589Obligations
      of state and political subdivisions
                      
                      
                      1
                      
                      
                      
                      859
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      1
                      
                      
                      
                      859Total
      securities available-for-sale
                      
                      $
                      447
                      
                      
                      $
                      50,448
                      
                      
                      $
                      0
                      
                      
                      $
                      0
                      
                      
                      $
                      447
                      
                      
                      $
                      50,448Securities
      Held-to-MaturityObligations
      of U. S. Government agencies
                      
                      $
                      7
                      
                      
                      $
                      893
                      
                      
                      $
                      0
                      
                      
                      $
                      0
                      
                      
                      $
                      7
                      
                      
                      $
                      893Total
                      
                      $
                      454
                      
                      
                      $
                      51,341
                      
                      
                      $
                      0
                      
                      
                      $
                      0
                      
                      
                      $
                      454
                      
                      
                      $
                      51,341





U.S. Government and federal
agency obligations


The U.S.
Government agencies portfolio had fifteen investments with unrealized losses at
March 31, 2010 and ten investments with unrealized losses at December 31, 2009.
These unrealized losses were caused by increases in market interest rates. The
contractual terms of those investments do not permit the issuer to settle the
securities at a price less than the amortized cost basis of the investments.
Because the Company does not intend to sell the investments and it is unlikely
that the Company will be required to sell the investments before recovery of
their amortized cost basis, which may be at maturity, the Company does not
consider those investments to be other-than-temporarily impaired at March 31,
2010 or December 31, 2009.





Obligations of state and
political subdivisions


The
unrealized loss on one investment in obligations of state and political
subdivisions at December 31, 2009 was caused by increases in market interest
rates. Because the Company does not intend to sell the investment and it is
unlikely that the Company will be required to sell the investment before
recovery of its amortized cost basis, which may be at maturity, the Company does
not consider the investment to be other-than-temporarily impaired at December
31, 2009.





Other-than-Temporarily
Impaired Securities


Management
evaluates securities for other-than-temporary impairment on at least a quarterly
basis, and more frequently when economic or market concerns warrant such
evaluation.  Consideration is given to (i) the length of time and the
extent to which the fair value has been less than cost, (ii) the financial
condition and near-term prospects of the issuer, and (iii) the intent and
ability of the Company to retain its investment in the issuer for a period of
time sufficient to allow for any anticipated recovery in fair
value.





The 2009
and 2010 unrealized losses relate to obligations of U.S. Government agencies and
state and political subdivisions. In analyzing an issuer's financial condition,
management considers whether the securities are issued by the federal government
or its agencies, whether downgrades by bond rating agencies have occurred, and
industry analysts' reports.  The unrealized losses are a result of
changes in market interest rates and not credit issues.  Since the
Company has the ability to hold debt securities until maturity, or for the
foreseeable future if classified as available-for-sale, no declines are deemed
to be other than temporary.





The
restricted security category on the balance sheets is comprised of Federal Home
Loan Bank of Atlanta (FHLB) and Federal Reserve Bank (FRB)
stock.  These stocks are classified as restricted securities because
their ownership is restricted to certain types of entities and they lack a
market.  Therefore, this stock is carried at cost and evaluated for
impairment.  When evaluating this stock for impairment, its value is
determined based on the ultimate recoverability of the par value rather than by
recognizing temporary declines in value.


- 7
-




The FHLB
paid a quarterly dividend for the second, third and fourth quarters of
2009.  The FHLB filed its annual report on Form 10-K in late March
2010.  According to the annual report, the FHLB’s net income for 2009
was $283.5 million, a $29.7 million, or 11.70%, increase from net income for
2008.  On April 29, 2010 the FHLB issued a press release on its
earnings for the first quarter of 2010.  Net income for the quarter
ended March 31, 2010 was approximately $48 million, compared to a loss of $2
million for the same period in 2009.  As of May 5, 2010, the FHLB had
not yet made a determination on whether it would issue a dividend for the first
quarter of 2010.  The FHLB reported that it was in compliance with all
of its regulatory capital requirements as of December 31,
2009.  Restricted stock, including FHLB stock, is viewed as a
long-term investment and the Company has the ability and the intent to hold this
stock until its value is recovered.  Therefore, the Company determined
the FHLB stock was not impaired as of March 31, 2010.





Note
3.  Loans


Loans at
March 31, 2010 and December 31, 2009 are summarized as follows:





March
      31,
                    
                    
                    December
      31,2010
                    
                    
                    2009(in
      thousands)Mortgage
      loans on real estate:Residential
      1-4 family
                    
                    $
                    99,874
                    
                    
                    $
                    100,788Commercial
                    
                    
                    355,764
                    
                    
                    
                    345,753Construction
                    
                    
                    25,591
                    
                    
                    
                    30,696Second
      mortgages
                    
                    
                    17,802
                    
                    
                    
                    19,997Equity
      lines of credit
                    
                    
                    39,355
                    
                    
                    
                    39,192Total
      mortgage loans on real estate
                    
                    
                    538,386
                    
                    
                    
                    536,426Commercial
      loans
                    
                    
                    57,765
                    
                    
                    
                    60,353Consumer
      installment loans
                    
                    
                    30,966
                    
                    
                    
                    33,371Other
                    
                    
                    4,321
                    
                    
                    
                    4,626Total
      loans
                    
                    
                    631,438
                    
                    
                    
                    634,776Net
      deferred loan costs *
                    
                    
                    470
                    
                    
                    
                    466Less:
      Allowance for loan losses
                    
                    
                    (11,144
                    )
                    
                    
                    (7,864
                    )Loans,
      net
                    
                    $
                    620,764
                    
                    
                    $
                    627,378*
      Net deferred loan costs are part of second mortgages and commercial real
      estate




The
following is a summary of information pertaining to impaired loans, nonaccrual
loans and loans ninety days or more past due and still accruing
interest:





March
      31,
                      
                      
                      December
      31,2010
                      
                      
                      2009(in
      thousands)Impaired
      loans without a valuation allowance
                      
                      $
                      5,198
                      
                      
                      $
                      0Impaired
      loans with a valuation allowance
                      
                      
                      10,971
                      
                      
                      
                      1,105Total
      impaired loans
                      
                      $
                      16,169
                      
                      
                      $
                      1,105Valuation
      allowance related to impaired loans
                      
                      $
                      3,000
                      
                      
                      $
                      387Total
      nonaccrual loans
                      
                      $
                      17,534
                      
                      
                      $
                      4,917Total
      loans past-due ninety days ormore
      and still accruing interest
                      
                      $
                      266
                      
                      
                      $
                      389




- 8
-


Note
4.  Allowance for Loan Losses


The
following summarizes activity in the allowance for loan losses for the three
months ended March 31, 2010 and the year ended December 31, 2009:





March
      31,
                  
                  
                  December
      31,2010
                  
                  
                  2009(in
      thousands)Balance,
      beginning of year
                  
                  $
                  7,864
                  
                  
                  $
                  6,406Recoveries
                  
                  
                  225
                  
                  
                  
                  937Provision
      for loan losses
                  
                  
                  4,700
                  
                  
                  
                  6,875Loans
      charged off
                  
                  
                  (1,645
                  )
                  
                  
                  (6,354
                  )Balance,
      end of period
                  
                  $
                  11,144
                  
                  
                  $
                  7,864




Note
5.  Share-Based Compensation


Share-based
compensation arrangements include stock options, restricted stock awards,
performance-based awards, stock appreciation rights and employee stock purchase
plans.  Accounting standards require all share-based payments to
employees to be valued using a fair value method on the date of grant and to be
expensed based on that fair value over the applicable vesting
period.





There
were no options granted in 2010, 2009 or 2008.





On March
9, 2008, the Company’s 1998 stock option plan expired.  Options to
purchase 259,400 shares of common stock were outstanding under the Company’s
1998 stock option plan at March 31, 2010.  The exercise price of each
option equals the market price of the Company’s common stock on the date of the
grant and each option’s maximum term is ten years.





Stock
option plan activity for the three months ended March 31, 2010 is summarized
below:





WeightedAverageWeighted
                  
                  
                  Remaining
                  
                  
                  AggregateAverage
                  
                  
                  Contractual
                  
                  
                  IntrinsicExercise
                  
                  
                  Life
                  
                  
                  ValueShares
                  
                  
                  Price
                  
                  
                  (in years)
                  
                  
                  (in thousands)Options
      outstanding, January 1, 2010
                  
                  
                  271,275
                  
                  
                  $
                  18.59Granted
                  
                  
                  0
                  
                  
                  
                  0Exercised
                  
                  
                  (9,375
                  )
                  
                  
                  11.05Canceled
      or expired
                  
                  
                  (2,500
                  )
                  
                  
                  21.94Options
      outstanding, March 31, 2010
                  
                  
                  259,400
                  
                  
                  $
                  18.83
                  
                  
                  
                  4.71
                  
                  
                  $
                  205Options
      exercisable, March 31, 2010
                  
                  
                  195,674
                  
                  
                  $
                  18.43
                  
                  
                  
                  3.79
                  
                  
                  $
                  205





The
aggregate intrinsic value of a stock option in the table above represents the
total pre-tax intrinsic value (the amount by which the current market value of
the underlying stock exceeds the exercise price of the option) that would have
been received by the option holders had all option holders exercised their
options on March 31, 2010.  This amount changes based on changes in
the market value of the Company’s stock.





The total
proceeds of the in-the-money options exercised during the three months ended
March 31, 2010 were $103,601.  The total intrinsic value of options
exercised during the same period was $32,724.





As of
March 31, 2010, there was $285 thousand of unrecognized compensation cost
related to nonvested options.  This cost is expected to be recognized
over a weighted-average period of 30 months.


- 9
-


Note
6.  Pension Plan


The
Company provides pension benefits for eligible participants through a
non-contributory defined benefits pension plan.  The plan was frozen
effective September 30, 2006; therefore, no additional participants will be
added to the plan.  The components of net periodic pension plan cost are as
follows:





Quarter
      ended March 31,
                  
                  2010
                  
                  
                  2009Pension BenefitsInterest
      cost
                  
                  $
                  78,431
                  
                  
                  $
                  71,058Expected
      return on plan assets
                  
                  
                  (97,295
                  )
                  
                  
                  (82,667
                  )Amortization
      of net loss
                  
                  
                  31,702
                  
                  
                  
                  25,861Net
      periodic pension plan cost
                  
                  $
                  12,838
                  
                  
                  $
                  14,252




At March
31, 2010, management had not yet determined how much, if any, the Company will
contribute to the plan in the year ending December 31, 2010.





Note
7.  Earnings per Share


Basic
earnings per share is computed by dividing net income by the weighted average
number of shares outstanding during the period.  Diluted earnings per
share is computed using the weighted average number of common shares outstanding
during the period, including the effect of dilutive potential common shares
attributable to outstanding stock options.





The
Company did not include 183 thousand potential common shares attributable to
outstanding stock options in the diluted earnings per share calculation at March
31, 2010 because they were antidilutive.





Note
8.  Recent Accounting Pronouncements


In
June 2009, the FASB issued new guidance relating to the accounting for
transfers of financial assets. The new guidance, which was issued as Statement
of Financial Accounting Standards No. 166 (SFAS 166), Accounting for Transfers
of Financial Assets, an amendment to SFAS No. 140, was adopted into Codification
in December 2009 through the issuance of Accounting Standards Updated (ASU)
2009-16. The new standard provides guidance to improve the relevance,
representational faithfulness and comparability of the information that an
entity provides in its financial statements about a transfer of financial
assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor’s continuing involvement, if any,
in transferred financial assets.  The Company adopted the new guidance
in 2010.  This guidance is not expected to have a significant impact
on the Company’s consolidated financial statements.





In June
2009, the FASB issued new guidance relating to variable interest entities
(VIEs).  The new guidance, which was issued as SFAS No. 167,
Amendments to FASB Interpretation No. 46(R) (SFAS 167), was adopted into
Codification in December 2009. The objective of the guidance is to improve
financial reporting by enterprises involved with VIEs and to provide more
relevant and reliable information to users of financial statements. SFAS 167 is
effective as of January 1, 2010. The Company does not expect the adoption
of the new guidance to have a material impact on its consolidated financial
statements.





In
October 2009, the FASB issued ASU 2009-15, Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance or Other Financing
(ASU 2009-15). ASU 2009-15 amends Subtopic 470-20 to expand accounting and
reporting guidance for own-share lending arrangements issued in contemplation of
convertible debt issuance. ASU 2009-15 is effective for fiscal years beginning
on or after December 15, 2009 and interim periods within those fiscal years for
arrangements outstanding as of the beginning of those fiscal years. The Company
does not expect the adoption of ASU 2009-15 to have a material impact on its
consolidated financial statements.





In
January 2010, the FASB issued ASU 2010-04, Accounting for Various Topics –
Technical Corrections to SEC Paragraphs (ASU 2010-04). ASU 2010-04 makes
technical corrections to existing SEC guidance including the following topics:
accounting for subsequent investments, termination of an interest rate swap,
issuance of financial statements - subsequent events, use of residential method
to value acquired assets other than goodwill, adjustments in assets and
liabilities for holding gains and losses, and selections of discount rate used
for measuring defined benefit obligation. The Company does not expect the
adoption of ASU 2010-04 to have a material impact on its consolidated financial
statements.


- 10
-





In
January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements
(ASU 2010-06). ASU 2010-06 amends Subtopic 820-10 to clarify existing
disclosures, require new disclosures, and includes conforming amendments to
guidance on employers’ disclosures about postretirement benefit plan assets. ASU
2010-06 is effective for interim and annual periods beginning after December 15,
2009, except for disclosures about purchases, sales, issuances, and settlements
in the roll forward of activity in Level 3 fair value measurements. Those
disclosures are effective for fiscal years beginning after December 15, 2010 and
for interim periods within those fiscal years.  The Company does not
expect the adoption of ASU 2010-06 to have a material impact on its consolidated
financial statements.





In
February 2010, the FASB issued ASU 2010-08, Technical Corrections to Various
Topics (ASU 2010-08). ASU 2010-08 clarifies guidance on embedded derivatives and
hedging. ASU 2010-08 is effective for interim and annual periods beginning after
December 15, 2009. The Company does not expect the adoption of ASU 2010-08 to
have a material impact on its consolidated financial statements.





In
February 2010, the FASB issued ASU 2010-09, Subsequent Events (Topic 855):
Amendments to Certain Recognition and Disclosure Requirements (ASU
2010-09).  ASU 2010-09 addresses both the interaction of the
requirements of Topic 855 with the SEC’s reporting requirements and the intended
breadth of the reissuance disclosures provisions related to subsequent
events.  An entity that is an SEC filer is not required to disclose
the date through which subsequent events have been evaluated.  ASU
2010-09 is effective immediately.  The adoption of the new guidance
did not have a material impact on the Company’s consolidated financial
statements.





Note
9.  Fair Value Measurements


The fair
value of a financial instrument is the current amount that would be exchanged
between willing parties, other than in a forced liquidation.  Fair
value is best determined based upon quoted market prices. However, in many
instances, there are no quoted market prices for the Company's various financial
instruments.  In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation
techniques.  Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows.  Accordingly, the fair value estimates may not be realized in
an immediate settlement of the instrument.  Certain financial
instruments and all nonfinancial instruments are excluded from the disclosure
requirements.  Accordingly, the aggregate fair value amounts presented
may not necessarily represent the underlying fair value of the Company’s
financial instruments.




- 11
-


The
estimated fair values, and related carrying or notional amounts, of the
Company's financial instruments are as follows:





March 31, 2010
                    
                    
                    December 31, 2009Carrying
                    
                    
                    Fair
                    
                    
                    Carrying
                    
                    
                    FairAmount
                    
                    
                    Value
                    
                    
                    Amount
                    
                    
                    Value(in
      thousands)Financial
      assets:Cash
      and cash equivalents
                    
                    $
                    68,466
                    
                    
                    $
                    68,466
                    
                    
                    $
                    47,636
                    
                    
                    $
                    47,636Securities
      available-for-sale
                    
                    
                    188,893
                    
                    
                    
                    188,893
                    
                    
                    
                    173,775
                    
                    
                    
                    173,775Securities
      held-to-maturity
                    
                    
                    3,112
                    
                    
                    
                    3,132
                    
                    
                    
                    2,212
                    
                    
                    
                    2,233Restricted
      securities
                    
                    
                    4,815
                    
                    
                    
                    4,815
                    
                    
                    
                    4,815
                    
                    
                    
                    4,815Loans,
      net of allowances for loan losses
                    
                    
                    620,764
                    
                    
                    
                    621,041
                    
                    
                    
                    627,378
                    
                    
                    
                    627,354Accrued
      interest receivable
                    
                    
                    2,891
                    
                    
                    
                    2,891
                    
                    
                    
                    2,873
                    
                    
                    
                    2,873Financial
      liabilities:Deposits
                    
                    
                    686,475
                    
                    
                    
                    688,099
                    
                    
                    
                    662,501
                    
                    
                    
                    664,625Federal
      funds purchased and other borrowings
                    
                    
                    1,313
                    
                    
                    
                    1,313
                    
                    
                    
                    1,019
                    
                    
                    
                    1,019Overnight
      repurchase agreements
                    
                    
                    52,665
                    
                    
                    
                    52,665
                    
                    
                    
                    49,560
                    
                    
                    
                    49,560Term
      repurchase agreements
                    
                    
                    63,864
                    
                    
                    
                    63,838
                    
                    
                    
                    59,859
                    
                    
                    
                    59,878Federal
      Home Loan Bank advances
                    
                    
                    65,000
                    
                    
                    
                    69,157
                    
                    
                    
                    65,000
                    
                    
                    
                    74,043Accrued
      interest payable
                    
                    
                    1,383
                    
                    
                    
                    1,383
                    
                    
                    
                    1,449
                    
                    
                    
                    1,449




U.S. GAAP
specifies a hierarchy of valuation techniques based on whether the inputs to
those valuation techniques are observable or unobservable.  Observable
inputs reflect market data obtained from independent sources, while unobservable
inputs reflect the Company’s market assumptions.  The three levels of
the fair value hierarchy based on these two types of inputs are as
follows:





Level
      1 –
              Valuation
      is based on quoted prices in active markets for identical assets or
      liabilities that the reporting entity has the ability to access at the
      measurement date.  Level 1 assets and liabilities generally
      include debt and equity securities that are traded in an active exchange
      market.  Valuations are obtained from readily available pricing
      sources for market transactions involving identical assets or
      liabilities.





Level
      2 –
            Valuation
      is based on inputs other than quoted prices included within level 1 that
      are observable for the asset or liability, either directly or
      indirectly.  The valuation may be based on quoted prices for
      similar assets or liabilities; quoted prices in markets that are not
      active; or other inputs that are observable or can be corroborated by
      observable market data for substantially the full term of the asset or
      liability.





Level
      3 –
            Valuation
      is based on unobservable inputs that are supported by little or no market
      activity and that are significant to the fair value of the assets or
      liabilities.  Level 3 assets and liabilities include financial
      instruments whose value is determined using pricing models, discounted
      cash flow methodologies, or similar techniques, as well as instruments for
      which determination of fair value requires significant management judgment
      or estimation.





The
following describes the valuation techniques used by the Company to measure
certain financial assets and liabilities recorded at fair value on a recurring
basis in the financial statements:




- 12
-




Securities
available-for-sale


Securities
available-for-sale are recorded at fair value on a recurring
basis.  Fair value measurement is based upon quoted market prices,
when available (Level 1).  If quoted market prices are not available,
fair values are measured utilizing independent valuation techniques of identical
or similar securities for which significant assumptions are derived primarily
from or corroborated by observable market data.  Third party vendors
compile prices from various sources and may determine the fair value of
identical or similar securities by using pricing models that consider observable
market data (Level 2). In certain cases where there is limited activity or
less transparency around inputs to the valuation, securities are classified
within Level 3 of the valuation hierarchy.  Currently, all of the
Company’s securities are considered to be Level 2 securities.





The
following table presents the balances of financial assets and liabilities
measured at fair value on a recurring basis:





Fair
      Value Measurements at March 31, 2010 Using(in thousands)Description
                    
                    Balance
                    
                    
                    Quoted
      Prices in
                      Active
      Markets for
                      Identical
      Markets
                      (Level
      1)
                    
                    
                    Significant
      Other
                      Observable
      Inputs
                      (Level
      2)
                    
                    
                    Significant
                      Unobservable
      Inputs
                      (Level
      3)Assets:Available-for-sale
      securities
                    
                    $
                    188,893
                    
                    
                    $
                    0
                    
                    
                    $
                    188,893
                    
                    
                    $
                    0





Fair
      Value Measurements at December 31, 2009 Using(in thousands)Description
                    
                    Balance
                    
                    
                    Quoted
      Prices in
                      Active
      Markets for
                      Identical
      Markets
                      (Level
      1)
                    
                    
                    Significant
      Other
                      Observable
      Inputs
                      (Level
      2)
                    
                    
                    Significant
                      Unobservable
      Inputs
                      (Level
      3)Assets:Available-for-sale
      securities
                    
                    $
                    173,775
                    
                    
                    $
                    0
                    
                    
                    $
                    173,775
                    
                    
                    $
                    0




Certain
financial assets are measured at fair value on a nonrecurring basis in
accordance with GAAP.  Adjustments to the fair value of these assets
usually result from the application of lower-of-cost-or-market accounting or
write-downs of individual assets.





The
following describes the valuation techniques used by the Company to measure
certain assets recorded at fair value on a nonrecurring basis in the financial
statements:





Impaired
loans


Loans are
designated as impaired when, in the judgment of management based on current
information and events, it is probable that all amounts due according to the
contractual terms of the loan agreement will not be collected.  The
measurement of loss associated with impaired loans can be based on either the
observable market price of the loan or the fair value of the
collateral.  Fair value is measured based on the value of the
collateral securing the loans.  Collateral may be in the form of real
estate or business assets including equipment, inventory, and accounts
receivable.  The vast majority of the collateral is real estate. The
value of real estate collateral is determined utilizing an income or market
valuation approach based on an appraisal conducted by an independent, licensed
appraiser outside of the Company using observable market data (Level
2).  However, if the collateral is a house or building in the process
of construction or if an appraisal of the real estate property is over two years
old, then the fair value is considered Level 3.  The value of business
equipment is based upon an outside appraisal if deemed significant, or the net
book value on the applicable business’ financial statements if not considered
significant using observable market data.  Likewise, values for
inventory and accounts receivable collateral are based on financial statement
balances or aging reports (Level 3).  Impaired loans allocated to the
allowance for loan losses are measured at fair value on a nonrecurring
basis.  Any fair value adjustments are recorded in the period incurred
as part of the provision for loan losses on the Consolidated Statements of
Operations.


- 13
-





Foreclosed
assets





Loans are
transferred to foreclosed assets when the collateral securing them is foreclosed
on.  The measurement of loss associated with foreclosed assets is
based on the fair value of the collateral compared to the unpaid loan balance
and anticipated costs to sell the property.  If there is a contract
for the sale of a property, and management reasonably believes the transaction
will be consummated in accordance with the terms of the contract, fair value is
based on the sale price in that contract (Level 1).  Lacking such a
contract, the value of real estate collateral is determined utilizing an income
or market valuation approach based on an appraisal conducted by an independent,
licensed appraiser outside of the Company using observable market data (Level
2).  However, if the collateral is a house or building in the process
of construction or if an appraisal of the real estate property is over two years
old, then the fair value is considered Level 3.  Any fair value
adjustments to foreclosed assets are recorded in the period incurred and
expensed against current earnings.





The
following table summarizes theCompany’s financial
assets that were measured at fair value on a nonrecurring basis:





Carrying Value at March 31, 2010(in thousands)Description
                      
                      Fair Value
                      
                      
                      Quoted Prices in
                        Active Markets for
                        Identical Assets
                        (Level 1)
                      
                      
                      Significant Other
                        Observable Inputs
                        (Level 2)
                      
                      
                      Significant
                        Unobservable
                        Inputs
                        (Level 3)Assets:Impaired
      loans
                      
                      $
                      7,971
                      
                      
                      $
                      0
                      
                      
                      $
                      6,521
                      
                      
                      $
                      1,450Foreclosed
      assets
                      
                      $
                      7,571
                      
                      
                      $
                      234
                      
                      
                      $
                      7,337
                      
                      
                      $
                      0




Carrying
      Value at December 31, 2009(in thousands)Description
                      
                      Fair
      Value
                      
                      
                      Quoted
      Prices in
                        Active
      Markets for
                        Identical
      Assets
                        (Level
      1)
                      
                      Significant
      Other
                        Observable
      Inputs
                        (Level
      2)
                      
                      Significant
                        Unobservable
                        Inputs
                        (Level
      3)Assets:Impaired
      loans
                      
                      $
                      718
                      
                      
                      $
                      0
                      
                      
                      $
                      0
                      
                      
                      $
                      718Foreclosed
      assets
                      
                      $
                      7,623
                      
                      
                      $
                      0
                      
                      
                      $
                      7,373
                      
                      
                      $
                      250





Note
10.  Segment Reporting


The
Company operates in a decentralized fashion in three principal business
segments: the Bank, the Trust, and the Parent.  Revenues from the
Bank’s operations consist primarily of interest earned on loans and investment
securities and service charges on deposit accounts. Trust’s operating revenues
consist principally of income from fiduciary activities.  The Parent’s
revenues are mainly interest and dividends received from the Bank and Trust
companies.  The Company has no other segments.


- 14
-





Three Months Ended March 31,
      2010Bank
                
                
                Trust
                
                
                Unconsolidated
                  Parent
                
                
                Eliminations
                
                
                ConsolidatedRevenuesInterest
      and dividend income
                
                $
                10,402,460
                
                
                $
                13,108
                
                
                $
                (875,669
                )
                
                $
                875,588
                
                
                $
                10,415,487Income
      from fiduciary activities
                
                
                0
                
                
                
                820,885
                
                
                
                0
                
                
                
                0
                
                
                
                820,885Other
      income
                
                
                2,370,784
                
                
                
                117,517
                
                
                
                78,038
                
                
                
                (89,376
                )
                
                
                2,476,963Total
      operating income
                
                
                12,773,244
                
                
                
                951,510
                
                
                
                (797,631
                )
                
                
                786,212
                
                
                
                13,713,335ExpensesInterest
      expense
                
                
                2,967,062
                
                
                
                0
                
                
                
                3,055
                
                
                
                (6,261
                )
                
                
                2,963,856Provision
      for loan losses
                
                
                4,700,000
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                4,700,000Salaries
      and employee benefits
                
                
                3,894,078
                
                
                
                502,448
                
                
                
                134,556
                
                
                
                0
                
                
                
                4,531,082Other
      expenses
                
                
                3,035,572
                
                
                
                222,730
                
                
                
                34,605
                
                
                
                (89,376
                )
                
                
                3,203,531Total
      operating expenses
                
                
                14,596,712
                
                
                
                725,178
                
                
                
                172,216
                
                
                
                (95,637
                )
                
                
                15,398,469Income
      (loss) before taxes
                
                
                (1,823,468
                )
                
                
                226,332
                
                
                
                (969,847
                )
                
                
                881,849
                
                
                
                (1,685,134
                )Income
      tax expense (benefit)
                
                
                (792,240
                )
                
                
                76,953
                
                
                
                (24,220
                )
                
                
                0
                
                
                
                (739,507
                )Net
      income (loss)
                
                $
                (1,031,228
                )
                
                $
                149,379
                
                
                $
                (945,627
                )
                
                $
                881,849
                
                
                $
                (945,627
                )Total
      assets
                
                $
                947,254,649
                
                
                $
                5,058,191
                
                
                $
                80,762,362
                
                
                $
                (81,211,296
                )
                
                $
                951,863,906




Three Months Ended March 31,
      2009Bank
                
                
                Trust
                
                
                Unconsolidated
                  Parent
                
                
                Eliminations
                
                
                ConsolidatedRevenuesInterest
      and dividend income
                
                $
                10,370,639
                
                
                $
                23,593
                
                
                $
                849,499
                
                
                $
                (848,089
                )
                
                $
                10,395,642Income
      from fiduciary activities
                
                
                0
                
                
                
                764,738
                
                
                
                0
                
                
                
                0
                
                
                
                764,738Other
      income
                
                
                2,105,863
                
                
                
                108,451
                
                
                
                75,000
                
                
                
                (89,326
                )
                
                
                2,199,988Total
      operating income
                
                
                12,476,502
                
                
                
                896,782
                
                
                
                924,499
                
                
                
                (937,415
                )
                
                
                13,360,368ExpensesInterest
      expense
                
                
                3,919,416
                
                
                
                0
                
                
                
                0
                
                
                
                (3,915
                )
                
                
                3,915,501Provision
      for loan losses
                
                
                1,000,000
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                1,000,000Salaries
      and employee benefits
                
                
                3,823,851
                
                
                
                505,191
                
                
                
                136,970
                
                
                
                0
                
                
                
                4,466,012Other
      expenses
                
                
                2,772,650
                
                
                
                208,876
                
                
                
                47,555
                
                
                
                (91,006
                )
                
                
                2,938,075Total
      operating expenses
                
                
                11,515,917
                
                
                
                714,067
                
                
                
                184,525
                
                
                
                (94,921
                )
                
                
                12,319,588Income
      (loss) before taxes
                
                
                960,585
                
                
                
                182,715
                
                
                
                739,974
                
                
                
                (842,494
                )
                
                
                1,040,780Income
      tax expense (benefit)
                
                
                238,683
                
                
                
                62,123
                
                
                
                (29,730
                )
                
                
                0
                
                
                
                271,076Net
      income (loss)
                
                $
                721,902
                
                
                $
                120,592
                
                
                $
                769,704
                
                
                $
                (842,494
                )
                
                $
                769,704Total
      assets
                
                $
                877,141,505
                
                
                $
                5,960,775
                
                
                $
                82,843,798
                
                
                $
                (85,103,073
                )
                
                $
                880,843,005





The Bank
extends a line of credit to the Parent; this line of credit is used primarily to
repurchase the Parent’s publicly traded stock.  Interest is charged at
the Wall Street Journal Prime Rate minus 0.5%, with a floor of
5.0%.  This loan is secured by a held-to-maturity security with a book
value of $412 thousand and a market value of $435 thousand.  Both the
Parent and the Trust companies maintain deposit accounts with the Bank, on terms
substantially similar to those available to other customers.  These
transactions are eliminated to reach consolidated totals.





Item
2.  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 financial condition, changes in financial condition and the
results of operations of the Company.  The Company consists of the
parent company and its wholly-owned subsidiaries, The Old Point National Bank of
Phoebus (the Bank) and Old Point Trust & Financial Services, N. A. (Trust),
collectively referred to as the Company.  This discussion should be
read in conjunction with the consolidated financial statements and other
financial information contained elsewhere in this report.


- 15
-


Caution
About Forward-Looking Statements


In
addition to historical information, this report may contain forward-looking
statements.  For this purpose, any statement that is not a statement of
historical fact may be a forward-looking statement.  These forward-looking
statements may include statements regarding profitability, liquidity, allowance
for loan losses, interest rate sensitivity, market risk, growth strategy and
financial and other goals.  Forward-looking statements often use words such
as “believes,” “expects,” “plans,” “may,” “will,” “should,” “projects,”
“contemplates,” “anticipates,” “forecasts,” “intends” or other words of similar
meaning.  Forward-looking statements can also be identified by the fact
that they do not relate strictly to historical or current facts. Forward-looking
statements are subject to numerous assumptions, risks and uncertainties, and
actual results could differ materially from historical results or those
anticipated by such statements.




There are
many factors that could have a material adverse effect on the operations and
future prospects of the Company including, but not limited to, changes in
interest rates, general economic and business conditions, the quality or
composition of the loan or investment portfolios, the size of the provision for
loan losses, the adequacy of the allowance for loan losses, the level of
nonperforming assets and charge-offs, the local real estate market, volatility
and disruption in national and international financial markets, government
intervention in the U.S. financial system, Federal Deposit Insurance Corporation
(FDIC) premiums and/or assessments, demand for loan products, deposit flows,
competition, and accounting principles, policies and
guidelines.  Monetary and fiscal policies of the U.S. Government could
also adversely affect the Company; such policies include the impact of any
regulations or programs implemented pursuant to the Emergency Economic
Stabilization Act of 2008 (EESA), the American Recovery and Reinvestment Act of
2009 (ARRA) and other policies of the Office of the Comptroller of the Currency,
U.S. Treasury and the Federal Reserve Board.




The
Company has experienced losses due to the current economic
climate.  Dramatic declines in the residential and commercial real
estate market in the past year have resulted in increases in nonperforming
assets and significant write-downs of asset values by the Company as well as by
other financial institutions in the U.S. Concerns about the stability of the
U.S. financial markets generally have reduced the availability of funding to
certain financial institutions, leading to a tightening of credit, reduction of
business activity and increased market volatility.




On May
22, 2009, the FDIC approved a final rule to impose a special assessment of 5
basis points on each bank’s total assets minus Tier 1 capital in order to
replenish the Deposit Insurance Fund.  This special assessment plus
higher quarterly assessments have impacted and will continue to impact the
Company’s performance by directly increasing expenses.




It is not
clear what other impacts the EESA, the ARRA or other liquidity and funding
initiatives of the Treasury and other bank regulatory agencies will have on the
financial markets and the financial services industry.  It is also not
clear what effects future regulatory reforms may have on financial markets, the
financial services industry and depository institutions. The extreme levels of
volatility and limited credit availability currently being experienced could
continue to affect the U.S. banking industry and the broader U.S. and global
economies, which would have an effect on all financial institutions, including
the Company.





These
risks and uncertainties should be considered in evaluating the forward-looking
statements contained herein, and readers are cautioned not to place undue
reliance on such statements.  Any forward-looking statement speaks
only as of the date on which it is made, and the Company undertakes no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which it is made.  In addition, past
results of operations are not necessarily indicative of future
results.





General


The
Company is the parent company of the Bank and Trust. The Bank is a locally
managed community bank serving the Hampton Roads localities of Hampton, Newport
News, Norfolk, Virginia Beach, Chesapeake, Williamsburg/James City County, York
County and Isle of Wight County. The Bank currently has 21 branch
offices.   Trust is a wealth management services
provider.


- 16
-





Critical
Accounting Policies and Estimates


As of
March 31, 2010, there have been no significant changes with regard to the
critical accounting policies and estimates disclosed in the Company’s 2009
annual report on Form 10-K.  That disclosure included a discussion of
the accounting policy that requires management’s most difficult, subjective or
complex judgments:  the allowance for loan losses.  In the
first quarter of 2010, there was a slight change to the critical accounting
estimate for the allowance for loan losses in the period used to calculate the
historic loss.  See the Allowance for Loan Loss section in this
Management’s Discussion and Analysis for more details about this slight
change.





Earnings
Summary


Net loss
for the first quarter of 2010 was $946 thousand as compared with net income of
$770 thousand earned in the first quarter of 2009, a decrease of $1.7 million or
222.86%. During the first quarter of 2010, the Company increased its loan loss
provision to $4.7 million compared to $1.0 million in the first quarter of 2009.
The increase to the loan loss provision was made to ensure that the Company has
adequately provided for potential loan losses due largely to ongoing difficulty
in the commercial real estate sector. In addition, the cost of FDIC insurance
increased by $227 thousand over the first quarter of 2009. Basic and diluted
losses per share for the first quarter of 2010 were $0.19. Basic and diluted
earnings per share for the first quarter of 2009 were $0.16.





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.  Changes in the volume
and mix of interest-earning assets and interest-bearing liabilities, as well as
their respective yields and rates, have a significant impact on the level of net
interest income.  The net interest yield is calculated by dividing
tax-equivalent net interest income by average earning assets.  Net
interest income, on a fully tax equivalent basis, was $7.5 million in the first
quarter of 2010, an increase of $936 thousand from the first quarter of
2009.  The net interest yield was 3.51% in the first quarter of 2010
and 3.35% in the first quarter of 2009. The net interest yield was higher in the
first quarter of 2010 as compared to the first quarter of 2009, because the cost
of average interest-bearing liabilities decreased by 34 basis points more than
the yield on average earning assets decreased.





Tax-equivalent
interest income decreased by only $15 thousand, or 0.14%, in the first quarter
of 2010 compared to the same period of 2009.  Average earning assets
grew $70.2 million, or 8.93%, compared to the first quarter of
2009.  Interest expense decreased $951 thousand, or 24.29%, and
average interest-bearing liabilities increased by $77.2 million, or 11.98% in
the first quarter of 2010 compared to the same period of 2009.





The yield
on average earning assets and cost of average interest-bearing liabilities both
decreased due to the Federal Open Market Committee (FOMC) lowering the Federal
Funds Target Rate during 2008 from 4.25% to a range of 0.00% to
0.25%.  The FOMC has kept the Federal Funds Target Rate unchanged
during 2009 and the first quarter of 2010. As higher yielding earning assets and
higher-cost interest-bearing liabilities that were booked prior to 2008 mature,
they are being replaced with lower yielding earning assets and lower cost
interest-bearing liabilities.




- 17
-


The
following table shows an analysis of average earning assets, interest-bearing
liabilities and rates and yields.  Nonaccrual loans are included in
loans outstanding.




AVERAGE
BALANCE SHEETS, NET INTEREST INCOME* AND RATES*





For
      the quarter ended March 31,2010
                                                                              
                                                                              
                                                                              2009Interest
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              InterestAverage
                                                                              
                                                                              
                                                                              Income/
                                                                              
                                                                              
                                                                              Yield/
                                                                              
                                                                              
                                                                              Average
                                                                              
                                                                              
                                                                              Income/
                                                                              
                                                                              
                                                                              Yield/Balance
                                                                              
                                                                              
                                                                              Expense
                                                                              
                                                                              
                                                                              Rate**
                                                                              
                                                                              
                                                                              Balance
                                                                              
                                                                              
                                                                              Expense
                                                                              
                                                                              
                                                                              Rate**(in
      thousands)(unaudited)Loans*
                                                                              
                                                                              $
                                                                              632,585
                                                                              
                                                                              
                                                                              $
                                                                              9,502
                                                                              
                                                                              
                                                                              
                                                                              6.01
                                                                              %
                                                                              
                                                                              $
                                                                              634,835
                                                                              
                                                                              
                                                                              $
                                                                              9,433
                                                                              
                                                                              
                                                                              
                                                                              5.94
                                                                              %Investment
      securities:Taxable
                                                                              
                                                                              
                                                                              171,106
                                                                              
                                                                              
                                                                              
                                                                              804
                                                                              
                                                                              
                                                                              
                                                                              1.88
                                                                              %
                                                                              
                                                                              
                                                                              91,563
                                                                              
                                                                              
                                                                              
                                                                              660
                                                                              
                                                                              
                                                                              
                                                                              2.88
                                                                              %Tax-exempt*
                                                                              
                                                                              
                                                                              7,902
                                                                              
                                                                              
                                                                              
                                                                              142
                                                                              
                                                                              
                                                                              
                                                                              7.19
                                                                              %
                                                                              
                                                                              
                                                                              13,901
                                                                              
                                                                              
                                                                              
                                                                              241
                                                                              
                                                                              
                                                                              
                                                                              6.93
                                                                              %Total
      investment securities
                                                                              
                                                                              
                                                                              179,008
                                                                              
                                                                              
                                                                              
                                                                              946
                                                                              
                                                                              
                                                                              
                                                                              2.11
                                                                              %
                                                                              
                                                                              
                                                                              105,464
                                                                              
                                                                              
                                                                              
                                                                              901
                                                                              
                                                                              
                                                                              
                                                                              3.42
                                                                              %Federal
      funds sold
                                                                              
                                                                              
                                                                              38,750
                                                                              
                                                                              
                                                                              
                                                                              20
                                                                              
                                                                              
                                                                              
                                                                              0.21
                                                                              %
                                                                              
                                                                              
                                                                              22,869
                                                                              
                                                                              
                                                                              
                                                                              13
                                                                              
                                                                              
                                                                              
                                                                              0.23
                                                                              %Other
      investments
                                                                              
                                                                              
                                                                              6,366
                                                                              
                                                                              
                                                                              
                                                                              11
                                                                              
                                                                              
                                                                              
                                                                              0.69
                                                                              %
                                                                              
                                                                              
                                                                              23,331
                                                                              
                                                                              
                                                                              
                                                                              147
                                                                              
                                                                              
                                                                              
                                                                              2.52
                                                                              %Total
      earning assets
                                                                              
                                                                              
                                                                              856,709
                                                                              
                                                                              
                                                                              $
                                                                              10,479
                                                                              
                                                                              
                                                                              
                                                                              4.89
                                                                              %
                                                                              
                                                                              
                                                                              786,499
                                                                              
                                                                              
                                                                              $
                                                                              10,494
                                                                              
                                                                              
                                                                              
                                                                              5.34
                                                                              %Allowance
      for loan losses
                                                                              
                                                                              
                                                                              (8,083
                                                                              )
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              (6,458
                                                                              )Other
      nonearning assets
                                                                              
                                                                              
                                                                              77,467
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              64,446Total
      assets
                                                                              
                                                                              $
                                                                              926,093
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              $
                                                                              844,487Time
      and savings deposits:Interest-bearing
      transaction accounts
                                                                              
                                                                              $
                                                                              10,611
                                                                              
                                                                              
                                                                              $
                                                                              2
                                                                              
                                                                              
                                                                              
                                                                              0.08
                                                                              %
                                                                              
                                                                              $
                                                                              9,308
                                                                              
                                                                              
                                                                              $
                                                                              2
                                                                              
                                                                              
                                                                              
                                                                              0.09
                                                                              %Money
      market deposit accounts
                                                                              
                                                                              
                                                                              150,439
                                                                              
                                                                              
                                                                              
                                                                              81
                                                                              
                                                                              
                                                                              
                                                                              0.22
                                                                              %
                                                                              
                                                                              
                                                                              131,124
                                                                              
                                                                              
                                                                              
                                                                              79
                                                                              
                                                                              
                                                                              
                                                                              0.24
                                                                              %Savings
      accounts
                                                                              
                                                                              
                                                                              43,302
                                                                              
                                                                              
                                                                              
                                                                              12
                                                                              
                                                                              
                                                                              
                                                                              0.11
                                                                              %
                                                                              
                                                                              
                                                                              39,403
                                                                              
                                                                              
                                                                              
                                                                              14
                                                                              
                                                                              
                                                                              
                                                                              0.14
                                                                              %Time
      deposits, $100,000 or more
                                                                              
                                                                              
                                                                              198,820
                                                                              
                                                                              
                                                                              
                                                                              711
                                                                              
                                                                              
                                                                              
                                                                              1.43
                                                                              %
                                                                              
                                                                              
                                                                              136,219
                                                                              
                                                                              
                                                                              
                                                                              1,051
                                                                              
                                                                              
                                                                              
                                                                              3.09
                                                                              %Other
      time deposits
                                                                              
                                                                              
                                                                              147,555
                                                                              
                                                                              
                                                                              
                                                                              1,150
                                                                              
                                                                              
                                                                              
                                                                              3.12
                                                                              %
                                                                              
                                                                              
                                                                              203,879
                                                                              
                                                                              
                                                                              
                                                                              1,777
                                                                              
                                                                              
                                                                              
                                                                              3.49
                                                                              %Total
      time and savings deposits
                                                                              
                                                                              
                                                                              550,727
                                                                              
                                                                              
                                                                              
                                                                              1,956
                                                                              
                                                                              
                                                                              
                                                                              1.42
                                                                              %
                                                                              
                                                                              
                                                                              519,933
                                                                              
                                                                              
                                                                              
                                                                              2,923
                                                                              
                                                                              
                                                                              
                                                                              2.25
                                                                              %Federal
      funds purchased, repurchase agreements and other
      borrowings
                                                                              
                                                                              
                                                                              105,990
                                                                              
                                                                              
                                                                              
                                                                              178
                                                                              
                                                                              
                                                                              
                                                                              0.67
                                                                              %
                                                                              
                                                                              
                                                                              54,590
                                                                              
                                                                              
                                                                              
                                                                              97
                                                                              
                                                                              
                                                                              
                                                                              0.71
                                                                              %Federal
      Home Loan Bank advances
                                                                              
                                                                              
                                                                              65,000
                                                                              
                                                                              
                                                                              
                                                                              830
                                                                              
                                                                              
                                                                              
                                                                              5.11
                                                                              %
                                                                              
                                                                              
                                                                              70,000
                                                                              
                                                                              
                                                                              
                                                                              895
                                                                              
                                                                              
                                                                              
                                                                              5.11
                                                                              %Total
      interest-bearing liabilities
                                                                              
                                                                              
                                                                              721,717
                                                                              
                                                                              
                                                                              
                                                                              2,964
                                                                              
                                                                              
                                                                              
                                                                              1.64
                                                                              %
                                                                              
                                                                              
                                                                              644,523
                                                                              
                                                                              
                                                                              
                                                                              3,915
                                                                              
                                                                              
                                                                              
                                                                              2.43
                                                                              %Demand
      deposits
                                                                              
                                                                              
                                                                              119,263
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              113,729Other
      liabilities
                                                                              
                                                                              
                                                                              2,721
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              3,118Stockholders'
      equity
                                                                              
                                                                              
                                                                              82,392
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              83,117Total
      liabilities and stockholders' equity
                                                                              
                                                                              $
                                                                              926,093
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              $
                                                                              844,487Net
      interest income/yield
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              $
                                                                              7,515
                                                                              
                                                                              
                                                                              
                                                                              3.51
                                                                              %
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              $
                                                                              6,579
                                                                              
                                                                              
                                                                              
                                                                              3.35
                                                                              %





*Computed
on a fully tax-equivalent basis using a 34% rate


**Annualized





Provision
for Loan Losses


The
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 portfolio.





The
provision for loan losses was $4.7 million in the first quarter of 2010, as
compared to $1.0 million in the first quarter of 2009.  This
additional expense was based on management’s estimate of credit losses that may
be sustained in the loan portfolio.  Management’s evaluation included
credit quality trends, collateral values, the findings of internal credit
quality assessments and results from external bank regulatory
examinations.  These factors, as well as identified impaired loans,
historical losses and current economic and business conditions, were used in
developing estimated loss factors for determining the loan loss
provision.





The
increase in the provision for loan losses was primarily due to two
reasons.  First, a lending relationship of $9.4 million was placed in
nonaccrual.  This loan is secured by commercial real estate and other
collateral that have a combined value of $6.6 million, leaving an unsecured
amount of $2.8 million.  Second, management changed the historical loss
calculation of the allowance for loan losses to focus on the more recent nine
quarters to reflect the current economic environment.  For more information
regarding the change of the historical loss calculation, see the Allowance for
Loan Losses section of this form 10Q.  Management believes that the
large increase in the provision for the first quarter will not continue and the
provision should be lower in the future.





- 18
-




Net loans
charged off were $1.4 million for the first quarter of 2010 as compared to $392
thousand for the first quarter of 2009. On an annualized basis, net loan
charge-offs were 0.90% of total loans for the first three months of 2010
compared with 0.25% for the same period in 2009. Net loan charge-offs have
increased reflecting ongoing difficulty in the commercial real estate sector.
Management believes that net loans charged-off will remain at this historically
high level until the economy is well into recovery.





Nonperforming
assets consist of nonaccrual loans, loans past due 90 days or more and accruing
interest, restructured loans, and foreclosed assets. Restructured loans are
loans with terms that were modified in a troubled debt restructuring for
borrowers experiencing financial difficulties.  As of March 31, 2010,
the Company had one restructured loan that was still accruing
interest.  This loan is secured by commercial real estate. The
customer entered into a forbearance agreement in 2009 and is currently in
compliance with the terms of this agreement.  Foreclosed assets is
real estate from foreclosures of collateral of loans. $266 thousand of the
Company’s nonperforming loans consist of loans 90 days past due but still
accruing interest, with $68 thousand of such loans secured by real
estate.  The majority of the loans 90 days past due but still accruing
interest are classified as substandard.  As noted below, substandard
loans are a component of the allowance for loan losses.  When a loan
changes from “90 days past due but still accruing interest” to “nonaccrual”
status, the loan is reviewed for impairment. If the loan is considered impaired,
then the difference between the value of the collateral and the principal amount
outstanding on the loan is charged off. If the Company is waiting on an
appraisal to determine the collateral’s value, management allocates funds to
cover the deficiency to the allowance for loan losses based on information
available to management at the time.





- 19
-




The
following table presents information concerning nonperforming
assets:





NONPERFORMING
ASSETS





March
      31,
                            
                            
                            December
      31,
                            
                            
                            Increase2010
                            
                            
                            2009
                            
                            
                            (Decrease)(unaudited)(in
      thousands)Nonaccrual
      loansCommercial
                            
                            $
                            178
                            
                            
                            $
                            255
                            
                            
                            $
                            (77
                            )Real
      estate-construction
                            
                            
                            524
                            
                            
                            
                            524
                            
                            
                            
                            0Real
      estate-mortgage
                            
                            
                            16,817
                            
                            
                            
                            4,109
                            
                            
                            
                            12,708Installment
      loans to individuals
                            
                            
                            15
                            
                            
                            
                            29
                            
                            
                            
                            (14
                            )Total
      nonaccrual loans
                            
                            $
                            17,534
                            
                            
                            $
                            4,917
                            
                            
                            $
                            12,617Loans
      past due 90 days or more and accruing interestCommercial
                            
                            $
                            25
                            
                            
                            $
                            40
                            
                            
                            $
                            (15
                            )Real
      estate-mortgage
                            
                            
                            68
                            
                            
                            
                            228
                            
                            
                            
                            (160
                            )Installment
      loans to individuals
                            
                            
                            169
                            
                            
                            
                            117
                            
                            
                            
                            52Other
                            
                            
                            4
                            
                            
                            
                            4
                            
                            
                            
                            0Total
      loans past due 90 days or more and accruing interest
                            
                            $
                            266
                            
                            
                            $
                            389
                            
                            
                            $
                            (123
                            )Restructured
      loans (accrual)Real
      estate-mortgage
                            
                            $
                            2,480
                            
                            
                            $
                            0
                            
                            
                            $
                            2,480Total
      restructured loans (accrual)
                            
                            $
                            2,480
                            
                            
                            $
                            0
                            
                            
                            $
                            2,480Foreclosed
      assetsReal
      estate-construction
                            
                            $
                            5,150
                            
                            
                            $
                            5,149
                            
                            
                            $
                            1Real
      estate-mortgage
                            
                            
                            2,421
                            
                            
                            
                            2,474
                            
                            
                            
                            (53
                            )Total
      foreclosed assets
                            
                            $
                            7,571
                            
                            
                            $
                            7,623
                            
                            
                            $
                            (52
                            )Total
      nonperforming assets
                            
                            $
                            27,851
                            
                            
                            $
                            12,929
                            
                            
                            $
                            14,922





The large
increase in the nonaccrual loan category is mainly due to one credit
relationship of $9.4 million or 74.60% of the $12.6 million total increase
in that category.  This loan is secured by commercial real estate and
other collateral that have a combined value of $6.6 million. The majority of the
balance of nonaccrual loans is related to a few large credit
relationships.  Of the $17.5 million of nonaccrual loans at March 31,
2010, $16.5 million or 94.29% was comprised of six credit
relationships: the $9.4 million relationship discussed above and five other
relationships of $2.2 million, $2.1 million, $1.6 million, $688 thousand and
$524 thousand.





Management
believes that the increase in nonperforming assets could continue to have a
negative effect on the Company’s condition if current economic conditions do not
improve. As was seen in the quarter ended March 31, 2010, the effect would be
lower earnings caused by larger contributions to the loan loss provision arising
from a larger impairment in the loan portfolio and a higher level of loan
charge-offs. Management believes the Company has excellent credit quality review
processes in place to identify problem loans quickly. Management will work with
customers that are having difficulties meeting their loan payments, and
considers foreclosure a last resort.





As
reflected in the $14.9 million increase in nonperforming assets during the first
three months of 2010, the quality of the Company’s loan portfolio declined. Due
to this decline, management has increased the allowance for loan losses to $11.1
million as of March 31, 2010 as compared to a balance of $7.9 million as of
December 31, 2009. As of March 31, 2010, the allowance for loan losses was
40.01% of nonperforming assets and 54.95% of nonperforming loans. The definition
of nonperforming loans is nonperforming assets less foreclosed assets. The
allowance for loan losses was 1.76% of total loans on March 31, 2010 and 1.24%
of total loans on December 31, 2009.





Allowance
for Loan Losses


The
allowance for loan losses is based on several components.  In
evaluating the adequacy of the allowance, the loan portfolio is divided into
several pools of loans:


- 20
-





1.
            Doubtful–specific
      identification


2.
            Substandard–specific
      identification


3.
            Pool–substandard


4.
            Pool–other
      assets especially mentioned (rated just above
  substandard)


5.
            Pool–pass
      loans (all other rated loans)





Historical
loss rates, adjusted for the current environment, are applied to the above five
pools of loans, except for doubtful and substandard loans which have losses
specifically calculated on an individual loan basis. Historical loss is one of
the components of the allowance. The historical loss for the first quarter of
2010 is based on the past nine quarters.  In prior periods, the
historical loss was based on the past four years.  In management’s
opinion, this change more accurately reflects the loss potential of the loan
portfolio in the current economic environment.  The historical loss
component of the allowance amounted to $3.8 million as of March 31,
2010.  Under the original four-year historical loss method, this
component would have been $680 thousand lower, or $3.1 million as of March 31,
2010.





In
addition, nonperforming loans are analyzed for impairment under U.S. GAAP and
are allocated based on this analysis. Increases in nonperforming loans affect
this portion of the adequacy review.  The Company’s nonperforming
loans fall in the doubtful pool with specific identification, the substandard
pool with specific identification or the pool-substandard pool of
loans.  Therefore, changes in nonperforming loans affect the dollar
amount of the allowance.  Unless the nonperforming loan is not
impaired, increases in nonperforming loans are reflected as an increase in the
allowance for loan losses.





The
majority of the Company’s nonperforming loans are collateralized by real
estate.  When reviewing loans for impairment or when the Company takes
loan collateral due to loan default, it obtains current
appraisals.  Any loan balance that is in excess of the appraised value
is allocated in the allowance.  In the current real estate market,
appraisers are having difficulty finding comparable sales, which is causing some
appraisals to be very low and in some cases involving construction the
properties cannot be completed for the amount at which they are being
appraised.  As a result, the Company is being conservative in its
valuation of collateral which results in higher than normal charged off loans
and higher than normal increases to the Company’s allowance for loan
losses.  As of March 31, 2010, the impaired loan component of the
allowance amounted to $3.0 million and is reflected as a valuation allowance
related to impaired loans in Note 3 of the Notes to Consolidated Financial
Statements included in this Form 10-Q.





The final
component of the allowance consists of qualitative factors and includes items
such as the economy, growth trends, concentrations, and legal and regulatory
changes. Due to the decline in the overall economy in 2008 and 2009, management
increased the component of the allowance for loan losses related to the economy
in each of the loan portfolios in 2009.  This component remains at
this level for the first quarter of 2010. The qualitative component of the
allowance amounted to $4.3 million as of March 31, 2010.





As a
result of these changes and the overall increase in nonperforming assets, the
Company added $4.7 million to the allowance for loan losses in the first three
months of 2010.  Management is concerned about the changes in the
nonperforming assets but believes that the allowance has been appropriately
funded for additional losses on existing loans, based on currently available
information.  The Company will continue to monitor nonperforming
assets closely and make changes to the allowance for loan losses when
necessary.





Noninterest
Income


For the
first quarter of 2010, noninterest income increased $333 thousand, or 11.24%, as
compared to the same period in 2009. This increase was due to several factors.
$56 thousand of the increase was due to higher income from fiduciary activities.
The majority of the $78 thousand increase in other service charges, commission
and fees was related to higher income from debit card and ATM fees. Income from
bank owned life insurance increased $213 thousand, due to the receipt of bank
owned life insurance proceeds and additional insurance purchased in
2009.


- 21
-




Noninterest
Expense


For the
first quarter of 2010, noninterest expense increased $331 thousand, or 4.46%,
over the first quarter of 2009. The largest portion of the increase in
noninterest expense was related to FDIC insurance costs.  In the first
quarter of 2010, FDIC insurance expense was $227 thousand higher than the same
period in 2009.  Salaries and employee benefits increased only $65
thousand or 1.46%. Loss (gain) on write-down/sale of foreclosed assets was $114
thousand less in the first quarter of 2010 as compared to the first quarter of
2009.  The Company does not anticipate that this trend will
continue.





As in
2009, management is keenly aware of the need to improve net income and continues
to monitor expenses.





Balance
Sheet Review


At March
31, 2010, the Company had total assets of $951.9 million, an increase of 3.30%
from $921.4 million at December 31, 2009.  Net loans as of March 31,
2010 were $620.8 million, a decrease of 1.05% from $627.4 million at December
31, 2009. The decrease in loans was partly due to the net increase of $3.3
million of the allowance for loan losses.  The Company has ample
liquidity to fund new loans.





The
Company’s holdings of “Alt-A” type mortgage loans such as adjustable rate and
nontraditional type loans were inconsequential, amounting to less than 1.00% of
the Company’s loan portfolio as of March 31, 2010.





The
Company does not have a formal program for subprime lending.  The
Company is required by law to comply with the requirements of the Community
Reinvestment Act (the CRA), which imposes on financial institutions an
affirmative and ongoing obligation to meet the credit needs of their local
communities, including low- and moderate-income borrowers. In order to comply
with the CRA and meet the credit needs of its local communities, the Company
finds it necessary to make certain loans with subprime
characteristics.





For the
purposes of this discussion, a “subprime loan” is defined as a loan to a
borrower having a credit score of 660 or below.  The majority of the
Company’s subprime loans are to customers in the Company’s local market
area.


- 22
-


The
following table details, as of March 31, 2010, the Company’s loans with subprime
characteristics that were secured by 1-4 family first mortgages, 1-4 family
open-end and 1-4 family junior lien loans for which the Company has recorded a
credit score in its system.





Loans
      Secured by 1 - 4 Family First Mortgages,1
      - 4 Family Open-end and 1 - 4 Family Junior
  Liens





Amount
                    
                    
                    PercentSubprime
                    
                    $
                    26,049,942
                    
                    
                    
                    20.4
                    %Non
      subprime
                    
                    
                    101,889,046
                    
                    
                    
                    79.6
                    %$
                    127,938,988
                    
                    
                    
                    100.0
                    %Total
      loans
                    
                    $
                    631,907,288Percentage
      of Real-Estate Secured Subprime Loans to Total Loans
                    
                    
                    
                    
                    
                    
                    4.12
                    %




In
addition to the subprime loans secured by real estate discussed above, as of
March 31, 2010, the Company had an additional $5.5 million in subprime consumer
loans that were either unsecured or secured by collateral other than real
estate.  Together with the subprime loans secured by real estate, the
Company’s total subprime loans as of March 31, 2010 were $31.5 million,
amounting to 4.99% of the Company’s total loans at March 31,
2010.  The Company’s total subprime loans as of December 31, 2009 were
$33.1 million or 5.20% of the Company’s total loans.  There has been a
reduction of $1.6 million or 21 basis points in the first quarter of 2010 in
subprime loans.





Additionally,
the Company has no investments secured by “Alt-A” type mortgage loans such as
adjustable rate and nontraditional type mortgages or subprime
loans.





Average
assets for the first three months of 2010 were $926.1 million compared to $844.5
million for the first three months of 2009.  The growth in average
assets in 2010 was due to the growth in average investment securities, which
increased 69.73% as compared to the same period in 2009. A portion of this
strong growth was due to the $17.6 million of funds that were in other
investments as of March 31, 2009 maturing and being replaced with investment
securities as of March 31, 2010.





Total
available-for-sale and held-to-maturity securities at March 31, 2010 were $192.0
million, an increase of 9.10% from $176.0 million at December 31,
2009.  Since loan demand has slowed this year, the Company has
increased its security holdings. The Company’s goal is to provide maximum return
on the investment portfolio within the framework of its asset/liability
objectives. The objectives include managing interest sensitivity, liquidity and
pledging requirements.





At March
31, 2010, total deposits increased by $24.0 million or 3.62% from $662.5 million
at December 31, 2009. In addition to strong deposit growth, the Company
experienced strong growth in its repurchase agreements.  Repurchase
agreements and other borrowings increased $7.4 million, or 6.70% since December
31, 2009. The Bank’s repurchase agreements are fully collateralized by
government agencies, providing customers with protection for funds that might
otherwise exceed the limit for FDIC insurance coverage.


- 23
-


Capital
Resources


Under
applicable banking regulations, Total Capital is comprised of core capital (Tier
1) and supplemental capital (Tier 2).  Tier 1 capital consists of
common stockholders’ equity and retained earnings 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 at March 31, 2010.  As shown below, these
ratios were all well above the regulatory minimum levels.




2010RegulatoryMinimums
                          
                          
                          March
      31, 2010Tier
      1
                          
                          
                          4.00
                          %
                          
                          
                          11.67
                          %Total
      Capital
                          
                          
                          8.00
                          %
                          
                          
                          12.93
                          %Tier
      1 Leverage
                          
                          
                          4.00
                          %
                          
                          
                          8.81
                          %





First
quarter-end book value per share was $16.35 in 2010 and $16.83 in
2009.  Cash dividends were $492 thousand or $0.10 per share in the
first quarter of 2010 and $834 thousand or $0.17 per share for the first quarter
of 2009. The common stock of the Company has not been extensively
traded.




Liquidity


Liquidity
is the ability of the Company to meet present and future financial obligations
through either the sale or maturity of existing assets or the acquisition of
additional funds through liability management.  Liquid assets include
cash, interest-bearing deposits with banks, federal funds sold, investments in
securities and loans maturing within one year.





A major
source of the Company’s liquidity is its large stable deposit
base.  In addition, secondary sources are available through the use of
borrowed funds if the need should arise, including secured advances from the
FHLB.  As of the end of the first quarter of 2010, the Company had
$219.2 million in FHLB borrowing availability. The Company has available
short-term unsecured borrowed funds in the form of federal funds with
correspondent banks.  As of the end of the first quarter of 2010, the
Company had $27.6 million available in federal funds to handle any short-term
borrowing needs.





Management
is aware of the current market and institutional trends, events and
uncertainties, including market disruptions and significant restrictions on
availability of capital in the U.S. and global economies.  However,
management does not expect the trends, events and uncertainties to have a
material effect on the liquidity or capital resources of the
Company.  Management is not aware of any current recommendations by
regulatory authorities that would have a material effect on liquidity or capital
resources. The Company’s internal sources of such liquidity are deposits, loan
and investment repayments and securities available-for-sale.  The
Company’s primary external source of liquidity is advances from the
FHLB.





As a
result of the Company’s management of liquid assets, the availability of
borrowed funds and the ability to generate liquidity through liability funding,
management believes that the Company maintains overall liquidity sufficient to
satisfy its depositors’ requirements and to meet its customers’ future borrowing
needs.





Contractual
Obligations


In the
normal course of business there are various outstanding contractual obligations
of the Company that will require future cash outflows.  In addition,
there are commitments and contingent liabilities, such as commitments to extend
credit, that may or may not require cash outflows.





The
Company has plans to expand the building of a current branch
office.  The Company has not signed a contract with a general
contractor for this project as of the filing of this Form 10-Q but anticipates
that the project will likely cost between $6.0 and $8.0 million over the next
three years.





As of
March 31, 2010, there have been no material changes outside the ordinary course
of business in the Company’s contractual obligations disclosed in the Company’s
2009 annual report on Form 10-K.


- 24
-


Off-Balance
Sheet Arrangements


As of
March 31, 2010, there were no material changes in the Company's off-balance
sheet arrangements disclosed in the Company’s 2009 annual report on Form
10-K.





Item
3.  Quantitative and Qualitative Disclosures About Market
Risk.





An
important element of earnings performance and the maintenance of sufficient
liquidity is proper management of the interest sensitivity gap and liquidity
gap.  The interest sensitivity gap is the difference between interest
sensitive assets and interest sensitive liabilities in a specific time
interval.  This gap can be managed by repricing assets or liabilities,
which are variable rate instruments, by replacing an asset or liability at
maturity or by adjusting the interest rate during the life of the asset or
liability.  Matching the amounts of assets and liabilities maturing in
the same time interval helps to offset interest rate risk and to minimize the
impact of rising or falling interest rates on net interest income.





The
Company determines the overall magnitude of interest sensitivity risk and then
formulates policies governing asset generation and pricing, funding sources and
pricing, and off-balance sheet commitments. These decisions are based on
management’s expectations regarding future interest rate movements, the state of
the national and regional economy, and other financial and business risk
factors.  The Company uses computer simulations to measure the effect
of various interest rate scenarios on net interest income. This modeling
reflects interest rate changes and the related impact on net interest income and
net income over specified time horizons.





Based on
scheduled maturities only, the Company was liability sensitive as of March 31,
2010.  It should be noted, however, that non-maturing deposit
liabilities, which consist of interest checking, money market, and savings
accounts, are less interest sensitive than other market driven
deposits.  At March 31, 2010, non-maturing deposit liabilities totaled
$329.6 million or 48.02% of total deposit liabilities.





In a
rising rate environment, changes in these deposit rates have historically lagged
behind the changes in earning asset rates, thus mitigating the impact from the
liability sensitivity position.  The asset/liability model allows the
Company to reflect the fact that non-maturing deposits are less rate sensitive
than other deposits by using a decay rate.  The decay rate is a type
of artificial maturity that simulates maturities for non-maturing deposits over
the number of months that more closely reflects historic data.  Using
the decay rate, the model reveals that the Company is asset
sensitive.





When the
Company is asset sensitive, net interest income should improve if interest rates
rise since assets will reprice faster than liabilities. Conversely, if interest
rates fall, net interest income should decline, depending on the optionality
(prepayment speeds) of the assets.  When the Company is liability
sensitive, net interest income should fall if rates rise and rise if rates
fall.





The most
likely scenario represents the rate environment as management forecasts it to
occur.  Management uses a “static” test to measure the effects of
changes in interest rates, or “shocks”, on net interest income.  This
test assumes that management takes no steps to adjust the balance sheet to
respond to the shock by repricing assets/liabilities, as discussed in the first
paragraph of this section.





Under the
rate environment forecasted by management, rate shocks in 50 to 100 basis point
increments are applied to see the impact on the Company’s earnings at March 31,
2010.  The rate shock model reveals that a 50 basis point decrease in
rates would cause an approximate 0.81% annual decrease in net interest income.
The rate shock model reveals that a 50 basis point rise in rates would cause an
approximate 0.98% annual increase in net interest income and that a 100 basis
point rise in rates would cause an approximate 2.45% increase in net interest
income.


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Item
4.  Controls and Procedures.





Disclosure Controls and
Procedures.  Management evaluated, with the participation of
the Company’s Chief Executive Officer and Chief Financial Officer, the
effectiveness of the Company’s disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) as of the end of the period covered by this report. Based on that
evaluation, the Company’s Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures are effective as
of the end of the period covered by this report to ensure that information
required to be disclosed in the reports that the Company files or submits under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms and that such information is
accumulated and communicated to management, including the Company’s Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.





In
designing and evaluating its disclosure controls and procedures, management
recognized that disclosure controls and procedures, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the disclosure controls and procedures are met.  The
design of any disclosure controls and procedures also is based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions.





Internal Control over Financial
Reporting.  Management is responsible for establishing and
maintaining adequate internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act).  No changes in the Company’s
internal control over financial reporting occurred during the fiscal quarter
ended March 31, 2010 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.





Because
of its inherent limitations, a system of internal control over financial
reporting may not prevent or detect misstatements.  Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may
deteriorate.




PART
II - OTHER INFORMATION





Item
1.  Legal Proceedings.





There are
no pending or threatened legal proceedings to which the Company, or any of its
subsidiaries, is a party or to which the property of the Company or any of its
subsidiaries is subject that, in the opinion of management, may materially
impact the financial condition of the Company.





Item
1A.  Risk Factors.





As of
March 31, 2010, there have been no material changes in the risk factors faced by
the Company from those disclosed in the Company’s 2009 annual report on Form
10-K.





Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds.





The
Company did not repurchase any shares of the Company’s common stock during the
quarter ended March 31, 2010.





Item
3.  Defaults Upon Senior Securities.





None.





Item
4.  [Removed and Reserved].





Item
5.  Other Information.





The
Company has made no changes to the procedures by which security holders may
recommend nominees to its board of directors.


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Item
      6.
            Exhibits.





Exhibit No.
                      
                      Description3.1
                      
                      Articles
      of Incorporation of Old Point Financial Corporation, as amended effective
      June 22, 2000 (incorporated by reference to Exhibit 3.1 to Form 10-K filed
      March 12, 2009)3.2
                      
                      Bylaws
      of Old Point Financial Corporation, as amended and restated September 11,
      2007 (incorporated by reference to Exhibit 3.2 to Form 8-K/A filed
      September 20, 2007)31.1
                      
                      Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
                      
                      Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232.1
                      
                      Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002


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SIGNATURES





Pursuant to the requirements 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.





OLD
      POINT FINANCIAL CORPORATIONMay
      7, 2010
            /s/Robert F. Shuford,
Sr.Robert
      F. Shuford, Sr.Chairman,
      President & Chief Executive Officer(Principal
      Executive Officer)May
      7, 2010
            /s/Laurie D. GrabowLaurie
      D. GrabowChief
      Financial Officer & Senior Vice President/ Finance(Principal
      Financial & Accounting
Officer)


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