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 June 30, 2010


or


o 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   o 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). o
Yes   o 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 o
              
              Accelerated filer xNon-accelerated filer o (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).


o 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 July 30,
2010





OLD
POINT FINANCIAL CORPORATION





FORM
10-Q





INDEX





PART
I - FINANCIAL INFORMATION





PageItem
      1.
                                
                                Financial
      Statements.
                                
                                1Consolidated
      Balance SheetsJune
      30, 2010 (unaudited) and December 31, 2009
                                
                                1Consolidated
      Statements of OperationsThree
      months ended June 30, 2010 and 2009 (unaudited)Six
      months ended June 30, 2010 and 2009 (unaudited)
                                
                                2Consolidated
      Statements of Changes in Stockholders' EquitySix
      months ended June 30, 2010 and 2009 (unaudited)
                                
                                3Consolidated
      Statements of Cash FlowsSix
      months ended June 30, 2010 and 2009 (unaudited)
                                
                                4Notes
      to Consolidated Financial Statements (unaudited)
                                
                                5Item
      2.
                                
                                Management's Discussion and
      Analysis of Financial Condition and Results of Operations.
                                
                                16Item
      3.
                                
                                Quantitative
      and Qualitative Disclosures About Market Risk.
                                
                                27Item
      4.
                                
                                Controls
      and Procedures.
                                
                                28PART
      II - OTHER INFORMATIONItem
      1.
                                
                                Legal
      Proceedings.
                                
                                28Item 1A.
                                
                                Risk
      Factors.
                                
                                28Item
      2.
                                
                                Unregistered
      Sales of Equity Securities and Use of Proceeds.
                                
                                29Item
      3.
                                
                                Defaults
      Upon Senior Securities.
                                
                                29Item
      4.
                                
                                [Removed
      and Reserved]
                                
                                29Item
      5.
                                
                                Other
      Information.
                                
                                29Item
      6.
                                
                                Exhibits.
                                
                                29





(i)


PART
I – FINANCIAL INFORMATION





Item
1.  Financial Statements.





Old
Point Financial Corporation and Subsidiaries


Consolidated
Balance Sheets


June
      30,
                          
                          
                          December
      31,2010
                          
                          
                          2009(unaudited)AssetsCash
      and due from banks
                          
                          $
                          16,049,456
                          
                          
                          $
                          13,223,901Federal
      funds sold
                          
                          
                          21,019,836
                          
                          
                          
                          34,412,097Cash
      and cash equivalents
                          
                          
                          37,069,292
                          
                          
                          
                          47,635,998Securities
      available-for-sale, at fair value
                          
                          
                          186,015,876
                          
                          
                          
                          173,774,953Securities
      held-to-maturity(fair value approximates $2,846,208 and
      $2,233,133)
                          
                          
                          2,812,000
                          
                          
                          
                          2,212,000Restricted
      securities
                          
                          
                          4,814,700
                          
                          
                          
                          4,814,700Loans,
      net of allowance for loan losses of $11,706,850 and
    $7,864,451
                          
                          
                          612,688,971
                          
                          
                          
                          627,378,089Premises
      and equipment, net
                          
                          
                          29,880,768
                          
                          
                          
                          30,397,444Bank
      owned life insurance
                          
                          
                          17,646,947
                          
                          
                          
                          16,290,838Foreclosed
      assets, net of valuation allowance of $761,500 and
$860,000
                          
                          
                          9,883,600
                          
                          
                          
                          7,623,500Other
      assets
                          
                          
                          11,557,096
                          
                          
                          
                          11,294,719$
                          912,369,250
                          
                          
                          $
                          921,422,241Liabilities
      & Stockholders' EquityDeposits:Noninterest-bearing
      deposits
                          
                          $
                          121,596,214
                          
                          
                          $
                          111,636,590Savings
      deposits
                          
                          
                          214,857,402
                          
                          
                          
                          205,647,611Time
      deposits
                          
                          
                          350,232,976
                          
                          
                          
                          345,216,588Total
      deposits
                          
                          
                          686,686,592
                          
                          
                          
                          662,500,789Federal
      funds purchased and other borrowings
                          
                          
                          1,093,177
                          
                          
                          
                          1,018,559Overnight
      repurchase agreements
                          
                          
                          48,858,124
                          
                          
                          
                          49,560,402Term
      repurchase agreements
                          
                          
                          57,018,425
                          
                          
                          
                          59,858,542Federal
      Home Loan Bank advances
                          
                          
                          35,000,000
                          
                          
                          
                          65,000,000Accrued
      expenses and other liabilities
                          
                          
                          1,718,346
                          
                          
                          
                          1,875,496Total
      liabilities
                          
                          
                          830,374,664
                          
                          
                          
                          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 and outstanding
                          
                          
                          24,629,550
                          
                          
                          
                          24,582,675Additional
      paid-in capital
                          
                          
                          15,915,198
                          
                          
                          
                          15,768,840Retained
      earnings
                          
                          
                          41,820,625
                          
                          
                          
                          42,518,889Accumulated
      other comprehensive loss, net
                          
                          
                          (370,787
                          )
                          
                          
                          (1,261,951
                          )Total
      stockholders' equity
                          
                          
                          81,994,586
                          
                          
                          
                          81,608,453Total
      liabilities and stockholders' equity
                          
                          $
                          912,369,250
                          
                          
                          $
                          921,422,241





See Notes
to Consolidated Financial Statements.


- 1 -




Old
Point Financial Corporation and Subsidiaries


Consolidated
Statements of Operations


Three
      Months Ended
                        
                        
                        Six
      Months EndedJune
      30,
                        
                        
                        June
      30,2010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2009(unaudited)
                        
                        
                        (unaudited)Interest
      and Dividend Income:Interest
      and fees on loans
                        
                        $
                        9,258,835
                        
                        
                        $
                        9,400,770
                        
                        
                        $
                        18,745,051
                        
                        
                        $
                        18,817,376Interest
      on federal funds sold
                        
                        
                        28,137
                        
                        
                        
                        8,770
                        
                        
                        
                        48,483
                        
                        
                        
                        22,027Interest
      on securities:Taxable
                        
                        
                        849,035
                        
                        
                        
                        710,202
                        
                        
                        
                        1,653,291
                        
                        
                        
                        1,369,784Tax-exempt
                        
                        
                        73,643
                        
                        
                        
                        154,319
                        
                        
                        
                        167,526
                        
                        
                        
                        313,633Dividends
      and interest on all other securities
                        
                        
                        11,581
                        
                        
                        
                        119,959
                        
                        
                        
                        22,367
                        
                        
                        
                        266,842Total
      interest and dividend income
                        
                        
                        10,221,231
                        
                        
                        
                        10,394,020
                        
                        
                        
                        20,636,718
                        
                        
                        
                        20,789,662Interest
      Expense:Interest
      on savings deposits
                        
                        
                        98,479
                        
                        
                        
                        98,375
                        
                        
                        
                        193,458
                        
                        
                        
                        193,066Interest
      on time deposits
                        
                        
                        1,703,128
                        
                        
                        
                        2,607,016
                        
                        
                        
                        3,564,055
                        
                        
                        
                        5,435,088Interest
      on federal funds purchased, securities sold underagreements
      to repurchase and other borrowings
                        
                        
                        182,823
                        
                        
                        
                        144,056
                        
                        
                        
                        361,148
                        
                        
                        
                        241,419Interest
      on Federal Home Loan Bank advances
                        
                        
                        710,632
                        
                        
                        
                        853,454
                        
                        
                        
                        1,540,257
                        
                        
                        
                        1,748,829Total
      interest expense
                        
                        
                        2,695,062
                        
                        
                        
                        3,702,901
                        
                        
                        
                        5,658,918
                        
                        
                        
                        7,618,402Net
      interest income
                        
                        
                        7,526,169
                        
                        
                        
                        6,691,119
                        
                        
                        
                        14,977,800
                        
                        
                        
                        13,171,260Provision
      for loan losses
                        
                        
                        1,300,000
                        
                        
                        
                        3,000,000
                        
                        
                        
                        6,000,000
                        
                        
                        
                        4,000,000Net
      interest income, after provision for loan losses
                        
                        
                        6,226,169
                        
                        
                        
                        3,691,119
                        
                        
                        
                        8,977,800
                        
                        
                        
                        9,171,260Noninterest
      Income:Income
      from fiduciary activities
                        
                        
                        780,963
                        
                        
                        
                        763,482
                        
                        
                        
                        1,601,848
                        
                        
                        
                        1,528,220Service
      charges on deposit accounts
                        
                        
                        1,280,064
                        
                        
                        
                        1,375,733
                        
                        
                        
                        2,594,741
                        
                        
                        
                        2,712,672Other
      service charges, commissions and fees
                        
                        
                        753,989
                        
                        
                        
                        655,888
                        
                        
                        
                        1,444,806
                        
                        
                        
                        1,268,262Income
      from bank owned life insurance
                        
                        
                        210,478
                        
                        
                        
                        176,014
                        
                        
                        
                        599,323
                        
                        
                        
                        352,029Gain
      on available-for-sale securities, net
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        76
                        
                        
                        
                        0Other
      operating income
                        
                        
                        102,272
                        
                        
                        
                        129,350
                        
                        
                        
                        184,820
                        
                        
                        
                        204,010Total
      noninterest income
                        
                        
                        3,127,766
                        
                        
                        
                        3,100,467
                        
                        
                        
                        6,425,614
                        
                        
                        
                        6,065,193Noninterest
      Expense:Salaries
      and employee benefits
                        
                        
                        4,621,668
                        
                        
                        
                        4,348,441
                        
                        
                        
                        9,152,750
                        
                        
                        
                        8,814,453Occupancy
      and equipment
                        
                        
                        1,050,934
                        
                        
                        
                        1,011,600
                        
                        
                        
                        2,150,317
                        
                        
                        
                        2,046,503FDIC
      insurance
                        
                        
                        316,905
                        
                        
                        
                        750,897
                        
                        
                        
                        646,181
                        
                        
                        
                        853,062Data
      processing
                        
                        
                        305,153
                        
                        
                        
                        274,045
                        
                        
                        
                        601,808
                        
                        
                        
                        523,295Customer
      development
                        
                        
                        217,931
                        
                        
                        
                        183,813
                        
                        
                        
                        440,230
                        
                        
                        
                        382,160Advertising
                        
                        
                        174,296
                        
                        
                        
                        180,086
                        
                        
                        
                        350,281
                        
                        
                        
                        351,580Loan
      expenses
                        
                        
                        241,583
                        
                        
                        
                        166,802
                        
                        
                        
                        363,873
                        
                        
                        
                        300,974Postage
      and courier expense
                        
                        
                        134,781
                        
                        
                        
                        131,376
                        
                        
                        
                        270,402
                        
                        
                        
                        268,579Employee
      professional development
                        
                        
                        117,139
                        
                        
                        
                        130,107
                        
                        
                        
                        260,039
                        
                        
                        
                        271,820Legal
      and audit expenses
                        
                        
                        214,607
                        
                        
                        
                        95,056
                        
                        
                        
                        319,738
                        
                        
                        
                        199,423Loss
      (gain) on write-down/sale of foreclosed assets
                        
                        
                        (4,787
                        )
                        
                        
                        73,893
                        
                        
                        
                        (51,047
                        )
                        
                        
                        141,209Other
                        
                        
                        585,255
                        
                        
                        
                        544,729
                        
                        
                        
                        1,205,506
                        
                        
                        
                        1,141,874Total
      noninterest expense
                        
                        
                        7,975,465
                        
                        
                        
                        7,890,845
                        
                        
                        
                        15,710,078
                        
                        
                        
                        15,294,932Income
      (loss) before income taxes
                        
                        
                        1,378,470
                        
                        
                        
                        (1,099,259
                        )
                        
                        
                        (306,664
                        )
                        
                        
                        (58,479
                        )Income
      tax expense (benefit)
                        
                        
                        370,374
                        
                        
                        
                        (477,341
                        )
                        
                        
                        (369,133
                        )
                        
                        
                        (206,265
                        )Net
      income (loss)
                        
                        $
                        1,008,096
                        
                        
                        $
                        (621,918
                        )
                        
                        $
                        62,469
                        
                        
                        $
                        147,786Basic
      Earnings (Loss) per Share:Average
      shares outstanding
                        
                        
                        4,925,910
                        
                        
                        
                        4,908,216
                        
                        
                        
                        4,923,025
                        
                        
                        
                        4,907,616Net
      income (loss) per share of common stock
                        
                        $
                        0.21
                        
                        
                        $
                        (0.13
                        )
                        
                        $
                        0.01
                        
                        
                        $
                        0.03Diluted
      Earnings (Loss) per Share:Average
      shares outstanding
                        
                        
                        4,932,233
                        
                        
                        
                        4,940,606
                        
                        
                        
                        4,933,023
                        
                        
                        
                        4,937,085Net
      income (loss) per share of common stock
                        
                        $
                        0.20
                        
                        
                        $
                        (0.13
                        )
                        
                        $
                        0.01
                        
                        
                        $
                        0.03


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 SIX MONTHS ENDED JUNE 30, 2010Balance
      at beginning of period
                              
                              
                              4,916,535
                              
                              
                              $
                              24,582,675
                              
                              
                              $
                              15,768,840
                              
                              
                              $
                              42,518,889
                              
                              
                              $
                              (1,261,951
                              )
                              
                              $
                              81,608,453Comprehensive
      income:Net
      income
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              62,469
                              
                              
                              
                              0
                              
                              
                              
                              62,469Unrealized
      holding gains arising during the period(net of tax,
      $459,059)
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              891,114
                              
                              
                              
                              891,114Reclassification
      adjustment (net of tax, $26)
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              50
                              
                              
                              
                              50Total
      comprehensive income
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              62,469
                              
                              
                              
                              891,164
                              
                              
                              
                              953,633Exercise
      of stock options
                              
                              
                              9,375
                              
                              
                              
                              46,875
                              
                              
                              
                              89,450
                              
                              
                              
                              (32,724
                              )
                              
                              
                              0
                              
                              
                              
                              103,601Tax
      benefit from disqualification of stock options
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              10,503
                              
                              
                              
                              0
                              
                              
                              
                              10,503Stock
      compensation expense
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              56,908
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              56,908Cash
      dividends ($0.15 per share)
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              (738,512
                              )
                              
                              
                              0
                              
                              
                              
                              (738,512
                              )Balance
      at end of period
                              
                              
                              4,925,910
                              
                              
                              $
                              24,629,550
                              
                              
                              $
                              15,915,198
                              
                              
                              $
                              41,820,625
                              
                              
                              $
                              (370,787
                              )
                              
                              $
                              81,994,586FOR
      THE SIX MONTHS ENDED JUNE 30, 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
                              
                              
                              
                              147,786
                              
                              
                              
                              0
                              
                              
                              
                              147,786Unrealized
      holding losses arising during the period(net of tax benefit,
      $52,825)
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              (102,542
                              )
                              
                              
                              (102,542
                              )Total
      comprehensive income
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              147,786
                              
                              
                              
                              (102,542
                              )
                              
                              
                              45,244Repurchase
      and retirement of common stock
                              
                              
                              (1,818
                              )
                              
                              
                              (9,090
                              )
                              
                              
                              0
                              
                              
                              
                              (27,189
                              )
                              
                              
                              0
                              
                              
                              
                              (36,279
                              )Exercise
      of stock options
                              
                              
                              5,624
                              
                              
                              
                              28,120
                              
                              
                              
                              77,308
                              
                              
                              
                              (41,541
                              )
                              
                              
                              0
                              
                              
                              
                              63,887Stock
      compensation expense
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              54,782
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              54,782Cash
      dividends ($0.27 per share)
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              (1,325,171
                              )
                              
                              
                              0
                              
                              
                              
                              (1,325,171
                              )Balance
      at end of period
                              
                              
                              4,909,035
                              
                              
                              $
                              24,545,175
                              
                              
                              $
                              15,638,412
                              
                              
                              $
                              42,004,791
                              
                              
                              $
                              (488,005
                              )
                              
                              $
                              81,700,373





See Notes
to Consolidated Financial Statements.


- 3 -




Old
Point Financial Corporation and Subsidiaries


Consolidated
Statements of Cash Flows


Six
      Months EndedJune
      30,2010
                                    
                                    
                                    2009(unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                                    
                                    $
                                    62,469
                                    
                                    
                                    $
                                    147,786Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                                    
                                    
                                    992,608
                                    
                                    
                                    
                                    914,978Provision
      for loan losses
                                    
                                    
                                    6,000,000
                                    
                                    
                                    
                                    4,000,000Net
      gain on sale of available-for-sale securities
                                    
                                    
                                    (76
                                    )
                                    
                                    
                                    0Net
      accretion and amortization of securities
                                    
                                    
                                    7,208
                                    
                                    
                                    
                                    (11,792
                                    )Net
      (gain) loss on disposal of premises and equipment
                                    
                                    
                                    (3,773
                                    )
                                    
                                    
                                    152Net
      (gain) loss on write-down/sale of foreclosed assets
                                    
                                    
                                    (51,047
                                    )
                                    
                                    
                                    141,209Income
      from bank owned life insurance
                                    
                                    
                                    (599,323
                                    )
                                    
                                    
                                    (352,029
                                    )Stock
      compensation expense
                                    
                                    
                                    56,908
                                    
                                    
                                    
                                    54,782Deferred
      tax benefit
                                    
                                    
                                    (1,368,017
                                    )
                                    
                                    
                                    (297,243
                                    )Increase
      in other assets
                                    
                                    
                                    (2,380,833
                                    )
                                    
                                    
                                    (8,378,041
                                    )Decrease
      in other liabilities
                                    
                                    
                                    (157,150
                                    )
                                    
                                    
                                    (134,279
                                    )Net
      cash provided by (used in) operating activities
                                    
                                    
                                    2,558,974
                                    
                                    
                                    
                                    (3,914,477
                                    )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of available-for-sale securities
                                    
                                    
                                    (94,172,153
                                    )
                                    
                                    
                                    (98,911,221
                                    )Purchases
      of held-to-maturity securities
                                    
                                    
                                    (1,200,000
                                    )
                                    
                                    
                                    (600,000
                                    )Purchases
      of restricted securities
                                    
                                    
                                    0
                                    
                                    
                                    
                                    (23,650
                                    )Proceeds
      from maturities and calls of securities
                                    
                                    
                                    76,290,349
                                    
                                    
                                    
                                    58,494,528Proceeds
      from sales of available-for-sale securities
                                    
                                    
                                    7,584,000
                                    
                                    
                                    
                                    2,295,000Decrease
      in loans made to customers
                                    
                                    
                                    8,689,118
                                    
                                    
                                    
                                    1,900,825Proceeds
      from sales of foreclosed assets
                                    
                                    
                                    1,001,547
                                    
                                    
                                    
                                    2,972,418Purchase
      of Bank Owned Life Insurance
                                    
                                    
                                    (940,000
                                    )
                                    
                                    
                                    0Purchases
      of premises and equipment
                                    
                                    
                                    (472,159
                                    )
                                    
                                    
                                    (2,664,019
                                    )Net
      cash used in investing activities
                                    
                                    
                                    (3,219,298
                                    )
                                    
                                    
                                    (36,536,119
                                    )CASH
      FLOWS FROM FINANCING ACTIVITIESIncrease
      (decrease) in noninterest-bearing deposits
                                    
                                    
                                    9,959,624
                                    
                                    
                                    
                                    (14,210,384
                                    )Increase
      (decrease) in savings deposits
                                    
                                    
                                    9,209,791
                                    
                                    
                                    
                                    (1,354,727
                                    )Increase
      (decrease) in time deposits
                                    
                                    
                                    5,016,388
                                    
                                    
                                    
                                    (4,349,934
                                    )Increase
      (decrease) in federal funds purchased, repurchase agreements andother borrowings
                                    
                                    
                                    (3,467,777
                                    )
                                    
                                    
                                    44,346,008Decrease
      in Federal Home Loan Bank advances
                                    
                                    
                                    (30,000,000
                                    )
                                    
                                    
                                    (5,000,000
                                    )Proceeds
      from exercise of stock options
                                    
                                    
                                    103,601
                                    
                                    
                                    
                                    63,887Repurchase
      and retirement of common stock
                                    
                                    
                                    0
                                    
                                    
                                    
                                    (36,279
                                    )Tax
      benefit from disqualification of stock options
                                    
                                    
                                    10,503
                                    
                                    
                                    
                                    0Cash
      dividends paid on common stock
                                    
                                    
                                    (738,512
                                    )
                                    
                                    
                                    (1,325,171
                                    )Net
      cash provided by (used in) financing activities
                                    
                                    
                                    (9,906,382
                                    )
                                    
                                    
                                    18,133,400Net
      decrease in cash and cash equivalents
                                    
                                    
                                    (10,566,706
                                    )
                                    
                                    
                                    (22,317,196
                                    )Cash
      and cash equivalents at beginning of period
                                    
                                    
                                    47,635,998
                                    
                                    
                                    
                                    47,324,713Cash
      and cash equivalents at end of period
                                    
                                    $
                                    37,069,292
                                    
                                    
                                    $
                                    25,007,517SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCash
      payments for:Interest
                                    
                                    $
                                    5,893,247
                                    
                                    
                                    $
                                    7,732,570Income
      tax
                                    
                                    $
                                    950,000
                                    
                                    
                                    $
                                    650,000SUPPLEMENTAL
      SCHEDULE OF NONCASH TRANSACTIONSUnrealized
      gain (loss) on investment securities
                                    
                                    $
                                    1,350,249
                                    
                                    
                                    $
                                    (155,367
                                    )Loans
      transferred to foreclosed assets
                                    
                                    $
                                    3,210,600
                                    
                                    
                                    $
                                    8,485,524





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 June 30, 2010 and December 31, 2009,
the results of operations for the three and six months ended June 30, 2010 and
2009 and statements of cash flows and changes in stockholders’ equity for the
six months ended June 30, 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)June
      30, 2010Obligations
      of  U.S. Government agencies
                    
                    $
                    2,400
                    
                    
                    $
                    12
                    
                    
                    $
                    0
                    
                    
                    $
                    2,412Obligations
      of state and political subdivisions
                    
                    
                    412
                    
                    
                    
                    22
                    
                    
                    
                    0
                    
                    
                    
                    434Total
                    
                    $
                    2,812
                    
                    
                    $
                    34
                    
                    
                    $
                    0
                    
                    
                    $
                    2,846December
      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)June
      30, 2010U.S.
      Treasury securities
                    
                    $
                    599
                    
                    
                    $
                    0
                    
                    
                    $
                    0
                    
                    
                    $
                    599Obligations
      of  U.S. Government agencies
                    
                    
                    177,324
                    
                    
                    
                    1,289
                    
                    
                    
                    0
                    
                    
                    
                    178,613Obligations
      of state and political subdivisions
                    
                    
                    4,787
                    
                    
                    
                    98
                    
                    
                    
                    0
                    
                    
                    
                    4,885Mortgage-backed
      securities
                    
                    
                    525
                    
                    
                    
                    12
                    
                    
                    
                    0
                    
                    
                    
                    537Money
      market investments
                    
                    
                    1,382
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    1,382Total
                    
                    $
                    184,617
                    
                    
                    $
                    1,399
                    
                    
                    $
                    0
                    
                    
                    $
                    186,016December
      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 table shows the gross unrealized losses and fair value at December 31,
2009 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.  The Company had no securities with unrealized losses as of June
30, 2010.





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


- 6 -




U.S. Government and federal
agency obligations


The U.S.
Government agencies portfolio had 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 management believes 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 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
management believes 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
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.





The FHLB
paid a quarterly dividend for the second, third and fourth quarters of 2009 and
the first and second quarters of 2010.  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.  On July 29, 2010, the FHLB issued a press release on its
earnings for the second quarter of 2010.  Net income for the quarter
ended June 30, 2010 was approximately $75 million, down from $192 million in the
second quarter of 2009.  The decrease in net income was mainly due to
net losses on derivatives and hedging activities in the second 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 June 30, 2010.


- 7 -


Note
3.  Loans


The
Company’s loan portfolio is summarized as follows:





June 30,
                                              
                                              
                                              December 31,2010
                                              
                                              
                                              2009(in
      thousands)Mortgage
      loans on real estate:Residential
      1-4 family
                                              
                                              $
                                              99,141
                                              
                                              
                                              $
                                              100,788Commercial
                                              
                                              
                                              356,279
                                              
                                              
                                              
                                              345,753Construction
                                              
                                              
                                              20,913
                                              
                                              
                                              
                                              30,696Second
      mortgages
                                              
                                              
                                              17,635
                                              
                                              
                                              
                                              19,997Equity
      lines of credit
                                              
                                              
                                              39,898
                                              
                                              
                                              
                                              39,192Total
      mortgage loans on real estate
                                              
                                              
                                              533,866
                                              
                                              
                                              
                                              536,426Commercial
      loans
                                              
                                              
                                              56,067
                                              
                                              
                                              
                                              60,353Consumer
      installment loans
                                              
                                              
                                              29,163
                                              
                                              
                                              
                                              33,371Other
                                              
                                              
                                              4,801
                                              
                                              
                                              
                                              4,626Total
      loans
                                              
                                              
                                              623,897
                                              
                                              
                                              
                                              634,776Net
      deferred loan costs *
                                              
                                              
                                              499
                                              
                                              
                                              
                                              466Less:
      Allowance for loan losses
                                              
                                              
                                              (11,707
                                              )
                                              
                                              
                                              (7,864
                                              )Loans,
      net
                                              
                                              $
                                              612,689
                                              
                                              
                                              $
                                              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:





June 30,
                    
                    
                    December 31,2010
                    
                    
                    2009(in
      thousands)Impaired
      loans without a valuation allowance
                    
                    $
                    4,001
                    
                    
                    $
                    0Impaired
      loans with a valuation allowance
                    
                    
                    13,578
                    
                    
                    
                    1,105Total
      impaired loans
                    
                    $
                    17,579
                    
                    
                    $
                    1,105Valuation
      allowance related to impaired loans
                    
                    $
                    3,597
                    
                    
                    $
                    387Total
      nonaccrual loans
                    
                    $
                    18,677
                    
                    
                    $
                    4,917Total
      loans past-due ninety days or more and still accruing
    interest
                    
                    $
                    659
                    
                    
                    $
                    389


- 8 -


Note
4.  Allowance for Loan Losses


The
following summarizes activity in the allowance for loan losses for the six
months ended June 30, 2010 and the year ended December 31, 2009:





June 30,
                  
                  
                  December 31,2010
                  
                  
                  2009(in
      thousands)Balance,
      beginning of year
                  
                  $
                  7,864
                  
                  
                  $
                  6,406Recoveries
                  
                  
                  403
                  
                  
                  
                  937Provision
      for loan losses
                  
                  
                  6,000
                  
                  
                  
                  6,875Loans
      charged off
                  
                  
                  (2,560
                  )
                  
                  
                  (6,354
                  )Balance,
      end of period
                  
                  $
                  11,707
                  
                  
                  $
                  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 the first six months of 2010 or in 2009.





On March
9, 2008, the Company’s 1998 stock option plan expired.  Options to
purchase 255,025 shares of common stock were outstanding under the Company’s
1998 stock option plan at June 30, 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 six months ended June 30, 2010 is summarized
below:





WeightedAverageWeighted
                          
                          
                          Remaining
                          
                          
                          AggregateAverage
                          
                          
                          Contractual
                          
                          
                          IntrinsicExercise
                          
                          
                          Life
                          
                          
                          ValueShares
                          
                          
                          Price
                          
                          
                          (inyears)
                          
                          
                          (inthousands)Options
      outstanding, January 1, 2010
                          
                          
                          271,275
                          
                          
                          $
                          18.59Granted
                          
                          
                          0
                          
                          
                          
                          0Exercised
                          
                          
                          (9,375
                          )
                          
                          
                          11.05Canceled
      or expired
                          
                          
                          (6,875
                          )
                          
                          
                          19.48Options
      outstanding, June 30, 2010
                          
                          
                          255,025
                          
                          
                          $
                          18.84
                          
                          
                          
                          4.48
                          
                          
                          $
                          72Options
      exercisable, June 30, 2010
                          
                          
                          192,049
                          
                          
                          $
                          18.45
                          
                          
                          
                          3.55
                          
                          
                          $
                          72





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 June 30, 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 six months ended June
30, 2010 were $103,601.  The total intrinsic value of options
exercised during the same period was $32,724.





As of
June 30, 2010, there was $256 thousand of unrecognized compensation cost related
to nonvested options.  This cost is expected to be recognized over a
weighted-average period of 27 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 June 30,
                  
                  2010
                  
                  
                  2009PensionBenefitsInterest
      cost
                  
                  $
                  78,431
                  
                  
                  $
                  71,058Expected
      return on plan assets
                  
                  
                  (97,296
                  )
                  
                  
                  (82,666
                  )Amortization
      of prior service cost
                  
                  
                  0
                  
                  
                  
                  0Amortization
      of net loss
                  
                  
                  31,701
                  
                  
                  
                  25,861Net
      periodic pension plan cost
                  
                  $
                  12,836
                  
                  
                  $
                  14,253





Six months ended June 30,
                  
                  2010
                  
                  
                  2009PensionBenefitsInterest
      cost
                  
                  $
                  156,862
                  
                  
                  $
                  142,116Expected
      return on plan assets
                  
                  
                  (194,591
                  )
                  
                  
                  (165,333
                  )Amortization
      of prior service cost
                  
                  
                  0
                  
                  
                  
                  0Amortization
      of net loss
                  
                  
                  63,403
                  
                  
                  
                  51,722Net
      periodic pension plan cost
                  
                  $
                  25,674
                  
                  
                  $
                  28,505





At June
30, 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 181 thousand potential common shares attributable to
outstanding stock options in the diluted earnings per share calculation at June
30, 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.


- 10 -





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
a 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 residual 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.





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 and 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.





In July
2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of
Financing Receivables and the Allowance for Credit Losses.”  The new
disclosure guidance will significantly expand the existing requirements and will
lead to greater transparency into a company’s exposure to credit losses from
lending arrangements.  The extensive new disclosures of information as
of the end of a reporting period will become effective for both interim and
annual reporting periods ending after December 31, 2010.  Specific
items regarding activity that occurred before the issuance of the ASU, such as
the allowance rollforward and modification disclosures, will be required for
periods beginning after December 15, 2010.  The Company is currently
assessing the impact that ASU 2010-20 will have on its 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:





June30,2010
                  
                  
                  December31,2009Carrying
                  
                  
                  Fair
                  
                  
                  Carrying
                  
                  
                  FairAmount
                  
                  
                  Value
                  
                  
                  Amount
                  
                  
                  Value(in thousands)Financial
      assets:Cash
      and cash equivalents
                  
                  $
                  37,069
                  
                  
                  $
                  37,069
                  
                  
                  $
                  47,636
                  
                  
                  $
                  47,636Securities
      available-for-sale
                  
                  
                  186,016
                  
                  
                  
                  186,016
                  
                  
                  
                  173,775
                  
                  
                  
                  173,775Securities
      held-to-maturity
                  
                  
                  2,812
                  
                  
                  
                  2,846
                  
                  
                  
                  2,212
                  
                  
                  
                  2,233Restricted
      securities
                  
                  
                  4,815
                  
                  
                  
                  4,815
                  
                  
                  
                  4,815
                  
                  
                  
                  4,815Loans,
      net of allowances for loan losses
                  
                  
                  612,689
                  
                  
                  
                  612,434
                  
                  
                  
                  627,378
                  
                  
                  
                  627,354Accrued
      interest receivable
                  
                  
                  2,421
                  
                  
                  
                  2,421
                  
                  
                  
                  2,873
                  
                  
                  
                  2,873Financial
      liabilities:Deposits
                  
                  
                  686,687
                  
                  
                  
                  678,216
                  
                  
                  
                  662,501
                  
                  
                  
                  664,625Federal
      funds purchased and other borrowings
                  
                  
                  1,093
                  
                  
                  
                  1,093
                  
                  
                  
                  1,019
                  
                  
                  
                  1,019Overnight
      repurchase agreements
                  
                  
                  48,858
                  
                  
                  
                  48,858
                  
                  
                  
                  49,560
                  
                  
                  
                  49,560Term
      repurchase agreements
                  
                  
                  57,018
                  
                  
                  
                  57,002
                  
                  
                  
                  59,859
                  
                  
                  
                  59,878Federal
      Home Loan Bank advances
                  
                  
                  35,000
                  
                  
                  
                  39,606
                  
                  
                  
                  65,000
                  
                  
                  
                  74,043Accrued
      interest payable
                  
                  
                  1,215
                  
                  
                  
                  1,215
                  
                  
                  
                  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 non-restricted securities are considered to be Level 2
securities.





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





Fair Value Measurements at June 30, 2010 Using(inthousands)Description
                        
                        Balance
                        
                        
                        Quoted Prices in
                          Active Markets for
                          Identical Assets
                          (Level 1)
                        
                        
                        Significant
      Other
                          Observable Inputs
                          (Level
      2)
                        
                        
                        Significant
                          Unobservable Inputs
                          (Level
      3)Assets:Available-for-sale
      securities
                        
                        $
                        186,016
                        
                        
                        $
                        0
                        
                        
                        $
                        186,016
                        
                        
                        $
                        0





Fair Value Measurements at December 31, 2009 Using(inthousands)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 U.S. 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 June 30, 2010(inthousands)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
                          
                          $
                          9,981
                          
                          
                          $
                          0
                          
                          
                          $
                          7,494
                          
                          
                          $
                          2,487Foreclosed
      assets
                          
                          $
                          9,884
                          
                          
                          $
                          0
                          
                          
                          $
                          9,884
                          
                          
                          $
                          0





Carrying Value at December 31, 2009(inthousands)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 Old Point National Bank of Phoebus (the Bank), Old Point Trust
& Financial Services, N. A. (Trust), and the Company as a separate segment
(for purposes of this Note, 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.





The
Company’s reportable segments are strategic business units that offer different
products and services.  They are managed separately because each
segment appeals to different markets and, accordingly, requires different
technologies and marketing strategies.


- 14 -


Information
about reportable segments and reconciliation of such information to the
consolidated financial statements follows:





Three
      Months Ended June 30, 2010Bank
                  
                  
                  Trust
                  
                  
                  Unconsolidated
                    Parent
                  
                  
                  Eliminations
                  
                  
                  ConsolidatedRevenuesInterest
      and dividend income
                  
                  $
                  10,205,459
                  
                  
                  $
                  14,834
                  
                  
                  $
                  1,102,756
                  
                  
                  $
                  (1,101,818
                  )
                  
                  $
                  10,221,231Income
      from fiduciary activities
                  
                  
                  0
                  
                  
                  
                  780,963
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  780,963Other
      income
                  
                  
                  2,229,996
                  
                  
                  
                  132,283
                  
                  
                  
                  75,000
                  
                  
                  
                  (90,476
                  )
                  
                  
                  2,346,803Total
      operating income
                  
                  
                  12,435,455
                  
                  
                  
                  928,080
                  
                  
                  
                  1,177,756
                  
                  
                  
                  (1,192,294
                  )
                  
                  
                  13,348,997ExpensesInterest
      expense
                  
                  
                  2,697,215
                  
                  
                  
                  0
                  
                  
                  
                  3,089
                  
                  
                  
                  (5,242
                  )
                  
                  
                  2,695,062Provision
      for loan losses
                  
                  
                  1,300,000
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  1,300,000Salaries
      and employee benefits
                  
                  
                  3,970,682
                  
                  
                  
                  524,461
                  
                  
                  
                  126,525
                  
                  
                  
                  0
                  
                  
                  
                  4,621,668Other
      expenses
                  
                  
                  3,104,040
                  
                  
                  
                  263,267
                  
                  
                  
                  76,966
                  
                  
                  
                  (90,476
                  )
                  
                  
                  3,353,797Total
      operating expenses
                  
                  
                  11,071,937
                  
                  
                  
                  787,728
                  
                  
                  
                  206,580
                  
                  
                  
                  (95,718
                  )
                  
                  
                  11,970,527Income
      (loss) before taxes
                  
                  
                  1,363,518
                  
                  
                  
                  140,352
                  
                  
                  
                  971,176
                  
                  
                  
                  (1,096,576
                  )
                  
                  
                  1,378,470Income
      tax expense (benefit)
                  
                  
                  359,574
                  
                  
                  
                  47,720
                  
                  
                  
                  (36,920
                  )
                  
                  
                  0
                  
                  
                  
                  370,374Net
      income (loss)
                  
                  $
                  1,003,944
                  
                  
                  $
                  92,632
                  
                  
                  $
                  1,008,096
                  
                  
                  $
                  (1,096,576
                  )
                  
                  $
                  1,008,096Total
      assets
                  
                  $
                  907,795,906
                  
                  
                  $
                  5,051,136
                  
                  
                  $
                  82,238,997
                  
                  
                  $
                  (82,716,789
                  )
                  
                  $
                  912,369,250




Three
      Months Ended June 30, 2009Bank
                  
                  
                  Trust
                  
                  
                  Unconsolidated
                    Parent
                  
                  
                  Eliminations
                  
                  
                  ConsolidatedRevenuesInterest
      and dividend income
                  
                  $
                  10,372,808
                  
                  
                  $
                  22,187
                  
                  
                  $
                  (547,445
                  )
                  
                  $
                  546,470
                  
                  
                  $
                  10,394,020Income
      from fiduciary activities
                  
                  
                  0
                  
                  
                  
                  763,482
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  763,482Other
      income
                  
                  
                  2,232,008
                  
                  
                  
                  118,853
                  
                  
                  
                  75,000
                  
                  
                  
                  (88,876
                  )
                  
                  
                  2,336,985Total
      operating income
                  
                  
                  12,604,816
                  
                  
                  
                  904,522
                  
                  
                  
                  (472,445
                  )
                  
                  
                  457,594
                  
                  
                  
                  13,494,487ExpensesInterest
      expense
                  
                  
                  3,709,163
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  (6,262
                  )
                  
                  
                  3,702,901Provision
      for loan losses
                  
                  
                  3,000,000
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  3,000,000Salaries
      and employee benefits
                  
                  
                  3,708,765
                  
                  
                  
                  511,613
                  
                  
                  
                  128,063
                  
                  
                  
                  0
                  
                  
                  
                  4,348,441Other
      expenses
                  
                  
                  3,376,300
                  
                  
                  
                  208,118
                  
                  
                  
                  48,580
                  
                  
                  
                  (90,594
                  )
                  
                  
                  3,542,404Total
      operating expenses
                  
                  
                  13,794,228
                  
                  
                  
                  719,731
                  
                  
                  
                  176,643
                  
                  
                  
                  (96,856
                  )
                  
                  
                  14,593,746Income
      (loss) before taxes
                  
                  
                  (1,189,412
                  )
                  
                  
                  184,791
                  
                  
                  
                  (649,088
                  )
                  
                  
                  554,450
                  
                  
                  
                  (1,099,259
                  )Income
      tax expense (benefit)
                  
                  
                  (513,000
                  )
                  
                  
                  62,829
                  
                  
                  
                  (27,170
                  )
                  
                  
                  0
                  
                  
                  
                  (477,341
                  )Net
      income (loss)
                  
                  $
                  (676,412
                  )
                  
                  $
                  121,962
                  
                  
                  $
                  (621,918
                  )
                  
                  $
                  554,450
                  
                  
                  $
                  (621,918
                  )Total
      assets
                  
                  $
                  849,135,594
                  
                  
                  $
                  6,009,554
                  
                  
                  $
                  81,945,157
                  
                  
                  $
                  (84,026,304
                  )
                  
                  $
                  853,064,001


- 15 -




Six
      Months Ended June 30, 2010Bank
                  
                  
                  Trust
                  
                  
                  Unconsolidated
                    Parent
                  
                  
                  Eliminations
                  
                  
                  ConsolidatedRevenuesInterest
      and dividend income
                  
                  $
                  20,607,919
                  
                  
                  $
                  27,942
                  
                  
                  $
                  227,087
                  
                  
                  $
                  (226,230
                  )
                  
                  $
                  20,636,718Income
      from fiduciary activities
                  
                  
                  0
                  
                  
                  
                  1,601,848
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  1,601,848Other
      income
                  
                  
                  4,600,780
                  
                  
                  
                  249,800
                  
                  
                  
                  153,038
                  
                  
                  
                  (179,852
                  )
                  
                  
                  4,823,766Total
      operating income
                  
                  
                  25,208,699
                  
                  
                  
                  1,879,590
                  
                  
                  
                  380,125
                  
                  
                  
                  (406,082
                  )
                  
                  
                  27,062,332ExpensesInterest
      expense
                  
                  
                  5,664,277
                  
                  
                  
                  0
                  
                  
                  
                  6,144
                  
                  
                  
                  (11,503
                  )
                  
                  
                  5,658,918Provision
      for loan losses
                  
                  
                  6,000,000
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  6,000,000Salaries
      and employee benefits
                  
                  
                  7,864,760
                  
                  
                  
                  1,026,909
                  
                  
                  
                  261,081
                  
                  
                  
                  0
                  
                  
                  
                  9,152,750Other
      expenses
                  
                  
                  6,139,612
                  
                  
                  
                  485,997
                  
                  
                  
                  111,571
                  
                  
                  
                  (179,852
                  )
                  
                  
                  6,557,328Total
      operating expenses
                  
                  
                  25,668,649
                  
                  
                  
                  1,512,906
                  
                  
                  
                  378,796
                  
                  
                  
                  (191,355
                  )
                  
                  
                  27,368,996Income
      (loss) before taxes
                  
                  
                  (459,950
                  )
                  
                  
                  366,684
                  
                  
                  
                  1,329
                  
                  
                  
                  (214,727
                  )
                  
                  
                  (306,664
                  )Income
      tax expense (benefit)
                  
                  
                  (432,666
                  )
                  
                  
                  124,673
                  
                  
                  
                  (61,140
                  )
                  
                  
                  0
                  
                  
                  
                  (369,133
                  )Net
      income (loss)
                  
                  $
                  (27,284
                  )
                  
                  $
                  242,011
                  
                  
                  $
                  62,469
                  
                  
                  $
                  (214,727
                  )
                  
                  $
                  62,469Total
      assets
                  
                  $
                  907,795,906
                  
                  
                  $
                  5,051,136
                  
                  
                  $
                  82,238,997
                  
                  
                  $
                  (82,716,789
                  )
                  
                  $
                  912,369,250




Six
      Months Ended June 30, 2009Bank
                  
                  
                  Trust
                  
                  
                  Unconsolidated
                    Parent
                  
                  
                  Eliminations
                  
                  
                  ConsolidatedRevenuesInterest
      and dividend income
                  
                  $
                  20,743,447
                  
                  
                  $
                  45,780
                  
                  
                  $
                  302,054
                  
                  
                  $
                  (301,619
                  )
                  
                  $
                  20,789,662Income
      from fiduciary activities
                  
                  
                  0
                  
                  
                  
                  1,528,220
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  1,528,220Other
      income
                  
                  
                  4,337,871
                  
                  
                  
                  227,304
                  
                  
                  
                  150,000
                  
                  
                  
                  (178,202
                  )
                  
                  
                  4,536,973Total
      operating income
                  
                  
                  25,081,318
                  
                  
                  
                  1,801,304
                  
                  
                  
                  452,054
                  
                  
                  
                  (479,821
                  )
                  
                  
                  26,854,855ExpensesInterest
      expense
                  
                  
                  7,628,579
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  (10,177
                  )
                  
                  
                  7,618,402Provision
      for loan losses
                  
                  
                  4,000,000
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  4,000,000Salaries
      and employee benefits
                  
                  
                  7,532,616
                  
                  
                  
                  1,016,804
                  
                  
                  
                  265,033
                  
                  
                  
                  0
                  
                  
                  
                  8,814,453Other
      expenses
                  
                  
                  6,148,950
                  
                  
                  
                  416,994
                  
                  
                  
                  96,135
                  
                  
                  
                  (181,600
                  )
                  
                  
                  6,480,479Total
      operating expenses
                  
                  
                  25,310,145
                  
                  
                  
                  1,433,798
                  
                  
                  
                  361,168
                  
                  
                  
                  (191,777
                  )
                  
                  
                  26,913,334Income
      (loss) before taxes
                  
                  
                  (228,827
                  )
                  
                  
                  367,506
                  
                  
                  
                  90,886
                  
                  
                  
                  (288,044
                  )
                  
                  
                  (58,479
                  )Income
      tax expense (benefit)
                  
                  
                  (274,317
                  )
                  
                  
                  124,952
                  
                  
                  
                  (56,900
                  )
                  
                  
                  0
                  
                  
                  
                  (206,265
                  )Net
      income (loss)
                  
                  $
                  45,490
                  
                  
                  $
                  242,554
                  
                  
                  $
                  147,786
                  
                  
                  $
                  (288,044
                  )
                  
                  $
                  147,786Total
      assets
                  
                  $
                  849,135,594
                  
                  
                  $
                  6,009,554
                  
                  
                  $
                  81,945,157
                  
                  
                  $
                  (84,026,304
                  )
                  
                  $
                  853,064,001





The Bank
extends a line of credit for $395 thousand to the Parent, of which $244 thousand
was drawn at June 30, 2010.  This line of credit is used primarily to
repurchase the Parent’s publicly traded stock, although it is also available to
provide a source of liquidity for the Parent.  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 $434 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.


- 16 -


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, but are not limited to, statements regarding
profitability, liquidity, allowance for loan losses, trends regarding the
provision for loan losses, trends regarding net loan charge-offs, levels of
overdraft or other fee income, losses or gains in the write-down/sale of
foreclosed assets, the costs of expanding a current branch office, 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, impaired loans and charge-offs, the local real estate
market, results of internal assessments and external bank regulatory
examinations, the value of collateral securing loans, the value of and the
Company’s ability to sell foreclosed assets, the Company’s ability to enter into
an agreement with a general contractor to expand a current branch office on
acceptable terms, 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 and other 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 recently-passed Dodd-Frank Wall Street Reform and Consumer
Protection Act (H.R. 4173) (the Dodd-Frank Act) may also adversely affect the
Company.




The
Company has experienced losses due to the current economic
climate.  Dramatic declines in the residential and commercial real
estate markets in recent years 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 (DIF).  This special assessment
plus higher quarterly assessments have impacted and will continue to impact the
Company’s performance by directly increasing expenses. Additionally, due to the
current capitalization of the DIF and to reforms contained in the Dodd-Frank
Act, the Company expects increased deposit insurance assessments to continue
through future operating periods.




It is not
clear what other impacts the 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, including the implementation of the Dodd-Frank Act, 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.


- 17 -


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.





Critical
Accounting Policies and Estimates


As of
June 30, 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 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 Losses section in this Management’s
Discussion and Analysis for more details about this slight change.





Earnings
Summary


Net
income for the second quarter of 2010 was $1.0 million as compared with a net
loss of $622 thousand in the second quarter of 2009, an increase of $1.6 million
or 262.09%. Net income for the first six months of 2010 was down 57.73% from the
same period in 2009.  During the second quarter of 2010, the Company
decreased its loan loss provision to $1.3 million compared to $3.0 million in
the second quarter of 2009. With the economy beginning to show some signs of
recovery, the Company believes that the reduced loan loss provision in the
second quarter of 2010 is appropriate, based on its analysis of the allowance
for loan losses (see the Allowance for Loan Losses section below). Expenses for
the second quarter of 2010 were also positively impacted by lower FDIC insurance
costs, down $434 thousand compared to the second quarter of 2009. Basic and
diluted earnings per share for the second quarter of 2010 were $0.21 and $0.20
respectively. Basic and diluted losses per share for the second quarter of 2009
were $0.13. Basic and diluted earnings per share for the six months ended June
30, 2010 and June 30, 2009 were $0.01 and $0.03, respectively.





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 $7.6 million in the second
quarter of 2010, an increase of $793 thousand from the second quarter of 2009.
The net interest yield was 3.45% in the second quarter of 2010, 8 basis points
higher than the 3.37% net interest yield in the equivalent period in 2009. The
higher net interest yield in 2010 was the result of the rate on interest-bearing
liabilities decreasing 78 basis points, compared to a 54 basis-point decrease in
the yield on earning assets.





Tax-equivalent
interest income decreased by $215 thousand, or 2.05%, in the second quarter of
2010 compared to the same period of 2009.  Average earning assets grew
$74.1 million, or 9.20%, compared to the second quarter of
2009.  Interest expense decreased $1.0 million, or 27.22%, and average
interest-bearing liabilities increased by $76.6 million, or 11.52% in the second
quarter of 2010 compared to the same period of 2009.





For the
six months ended June 30, 2010, tax-equivalent net interest income was $15.1
million, up 12.94% from the first six months of 2009. The net interest yield of
3.48% in the first half of 2010 was 12 basis points higher than the yield for
the same period of 2009, again due to the rate on interest-bearing liabilities
decreasing faster than the yield on earning assets. Tax-equivalent interest
income for the six months ended June 30, 2010 decreased $230 thousand, or only
1.10%, from the first six months of 2009, while interest expense fell $2.0
million, or 25.72% between the same periods.  Average earning assets
grew 9.06% between June 30, 2010 and June 30, 2009; average interest-bearing
liabilities grew even faster during that period at 11.75%.


- 18 -


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 six months 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.





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


- 19 -




AVERAGE BALANCE SHEETS, NET INTEREST INCOME* AND
RATES*





For
      the quarter ended June 30,2010
                          
                          
                          2009Interest
                          
                          
                          
                          
                          
                          
                          
                          
                          InterestAverage
                          
                          
                          Income/
                          
                          
                          Yield/
                          
                          
                          Average
                          
                          
                          Income/
                          
                          
                          Yield/Balance
                          
                          
                          Expense
                          
                          
                          Rate**
                          
                          
                          Balance
                          
                          
                          Expense
                          
                          
                          Rate**(in
      thousands)(unaudited)Loans*
                          
                          $
                          631,202
                          
                          
                          $
                          9,274
                          
                          
                          
                          5.88
                          %
                          
                          $
                          634,239
                          
                          
                          $
                          9,417
                          
                          
                          
                          5.94
                          %Investment
      securities:Taxable
                          
                          
                          182,401
                          
                          
                          
                          849
                          
                          
                          
                          1.86
                          %
                          
                          
                          123,470
                          
                          
                          
                          710
                          
                          
                          
                          2.30
                          %Tax-exempt*
                          
                          
                          5,912
                          
                          
                          
                          113
                          
                          
                          
                          7.65
                          %
                          
                          
                          12,504
                          
                          
                          
                          234
                          
                          
                          
                          7.49
                          %Total
      investment securities
                          
                          
                          188,313
                          
                          
                          
                          962
                          
                          
                          
                          2.04
                          %
                          
                          
                          135,974
                          
                          
                          
                          944
                          
                          
                          
                          2.78
                          %Federal
      funds sold
                          
                          
                          54,423
                          
                          
                          
                          28
                          
                          
                          
                          0.21
                          %
                          
                          
                          16,404
                          
                          
                          
                          9
                          
                          
                          
                          0.22
                          %Other
      investments
                          
                          
                          5,926
                          
                          
                          
                          11
                          
                          
                          
                          0.74
                          %
                          
                          
                          19,140
                          
                          
                          
                          120
                          
                          
                          
                          2.51
                          %Total
      earning assets
                          
                          
                          879,864
                          
                          
                          $
                          10,275
                          
                          
                          
                          4.67
                          %
                          
                          
                          805,757
                          
                          
                          $
                          10,490
                          
                          
                          
                          5.21
                          %Allowance
      for loan losses
                          
                          
                          (11,468
                          )
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (6,984
                          )Other
      nonearning assets
                          
                          
                          79,733
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          66,752Total
      assets
                          
                          $
                          948,129
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          865,525Time
      and savings deposits:Interest-bearing
      transaction accounts
                          
                          $
                          11,571
                          
                          
                          $
                          2
                          
                          
                          
                          0.07
                          %
                          
                          $
                          9,836
                          
                          
                          $
                          2
                          
                          
                          
                          0.08
                          %Money
      market deposit accounts
                          
                          
                          155,714
                          
                          
                          
                          86
                          
                          
                          
                          0.22
                          %
                          
                          
                          135,820
                          
                          
                          
                          79
                          
                          
                          
                          0.23
                          %Savings
      accounts
                          
                          
                          45,682
                          
                          
                          
                          11
                          
                          
                          
                          0.10
                          %
                          
                          
                          41,857
                          
                          
                          
                          17
                          
                          
                          
                          0.16
                          %Time
      deposits, $100,000 or more
                          
                          
                          147,982
                          
                          
                          
                          716
                          
                          
                          
                          1.94
                          %
                          
                          
                          153,660
                          
                          
                          
                          981
                          
                          
                          
                          2.55
                          %Other
      time deposits
                          
                          
                          204,761
                          
                          
                          
                          987
                          
                          
                          
                          1.93
                          %
                          
                          
                          184,274
                          
                          
                          
                          1,626
                          
                          
                          
                          3.53
                          %Total
      time and savings deposits
                          
                          
                          565,710
                          
                          
                          
                          1,802
                          
                          
                          
                          1.27
                          %
                          
                          
                          525,447
                          
                          
                          
                          2,705
                          
                          
                          
                          2.06
                          %Federal
      funds purchased, repurchaseagreements
      and other borrowings
                          
                          
                          120,394
                          
                          
                          
                          183
                          
                          
                          
                          0.61
                          %
                          
                          
                          73,425
                          
                          
                          
                          144
                          
                          
                          
                          0.78
                          %Federal
      Home Loan Bank advances
                          
                          
                          55,480
                          
                          
                          
                          710
                          
                          
                          
                          5.12
                          %
                          
                          
                          66,111
                          
                          
                          
                          854
                          
                          
                          
                          5.17
                          %Total
      interest-bearing liabilities
                          
                          
                          741,584
                          
                          
                          
                          2,695
                          
                          
                          
                          1.45
                          %
                          
                          
                          664,983
                          
                          
                          
                          3,703
                          
                          
                          
                          2.23
                          %Demand
      deposits
                          
                          
                          122,835
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          114,575Other
      liabilities
                          
                          
                          2,363
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          3,224Stockholders'
      equity
                          
                          
                          81,347
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          82,743Total
      liabilities and stockholders' equity
                          
                          $
                          948,129
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          865,525Net
      interest income/yield
                          
                          
                          
                          
                          
                          $
                          7,580
                          
                          
                          
                          3.45
                          %
                          
                          
                          
                          
                          
                          $
                          6,787
                          
                          
                          
                          3.37
                          %





For
      the six months ended June 30,2010
                          
                          
                          2009Interest
                          
                          
                          
                          
                          
                          
                          
                          
                          InterestAverage
                          
                          
                          Income/
                          
                          
                          Yield/
                          
                          
                          Average
                          
                          
                          Income/
                          
                          
                          Yield/Balance
                          
                          
                          Expense
                          
                          
                          Rate**
                          
                          
                          Balance
                          
                          
                          Expense
                          
                          
                          Rate**(in
      thousands)(unaudited)Loans*
                          
                          $
                          631,898
                          
                          
                          $
                          18,776
                          
                          
                          
                          5.94
                          %
                          
                          $
                          634,537
                          
                          
                          $
                          18,850
                          
                          
                          
                          5.94
                          %Investment
      securities:Taxable
                          
                          
                          176,755
                          
                          
                          
                          1,653
                          
                          
                          
                          1.87
                          %
                          
                          
                          107,516
                          
                          
                          
                          1,370
                          
                          
                          
                          2.55
                          %Tax-exempt*
                          
                          
                          6,907
                          
                          
                          
                          255
                          
                          
                          
                          7.38
                          %
                          
                          
                          13,203
                          
                          
                          
                          475
                          
                          
                          
                          7.20
                          %Total
      investment securities
                          
                          
                          183,662
                          
                          
                          
                          1,908
                          
                          
                          
                          2.08
                          %
                          
                          
                          120,719
                          
                          
                          
                          1,845
                          
                          
                          
                          3.06
                          %Federal
      funds sold
                          
                          
                          46,587
                          
                          
                          
                          48
                          
                          
                          
                          0.21
                          %
                          
                          
                          19,637
                          
                          
                          
                          22
                          
                          
                          
                          0.22
                          %Other
      investments
                          
                          
                          6,146
                          
                          
                          
                          22
                          
                          
                          
                          0.72
                          %
                          
                          
                          21,236
                          
                          
                          
                          267
                          
                          
                          
                          2.51
                          %Total
      earning assets
                          
                          
                          868,293
                          
                          
                          $
                          20,754
                          
                          
                          
                          4.78
                          %
                          
                          
                          796,129
                          
                          
                          $
                          20,984
                          
                          
                          
                          5.27
                          %Allowance
      for loan losses
                          
                          
                          (9,776
                          )
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (6,721
                          )Other
      nonearning assets
                          
                          
                          78,607
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          65,653Total
      assets
                          
                          $
                          937,124
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          855,061Time
      and savings deposits:Interest-bearing
      transaction accounts
                          
                          $
                          11,092
                          
                          
                          $
                          4
                          
                          
                          
                          0.07
                          %
                          
                          $
                          9,572
                          
                          
                          $
                          4
                          
                          
                          
                          0.08
                          %Money
      market deposit accounts
                          
                          
                          153,078
                          
                          
                          
                          167
                          
                          
                          
                          0.22
                          %
                          
                          
                          133,471
                          
                          
                          
                          158
                          
                          
                          
                          0.24
                          %Savings
      accounts
                          
                          
                          44,492
                          
                          
                          
                          23
                          
                          
                          
                          0.10
                          %
                          
                          
                          40,631
                          
                          
                          
                          31
                          
                          
                          
                          0.15
                          %Time
      deposits, $100,000 or more
                          
                          
                          173,283
                          
                          
                          
                          1,427
                          
                          
                          
                          1.65
                          %
                          
                          
                          144,940
                          
                          
                          
                          2,032
                          
                          
                          
                          2.80
                          %Other
      time deposits
                          
                          
                          176,283
                          
                          
                          
                          2,137
                          
                          
                          
                          2.42
                          %
                          
                          
                          194,076
                          
                          
                          
                          3,403
                          
                          
                          
                          3.51
                          %Total
      time and savings deposits
                          
                          
                          558,228
                          
                          
                          
                          3,758
                          
                          
                          
                          1.35
                          %
                          
                          
                          522,690
                          
                          
                          
                          5,628
                          
                          
                          
                          2.15
                          %Federal
      funds purchased, repurchaseagreements
      and other borrowings
                          
                          
                          113,194
                          
                          
                          
                          361
                          
                          
                          
                          0.64
                          %
                          
                          
                          64,008
                          
                          
                          
                          241
                          
                          
                          
                          0.75
                          %Federal
      Home Loan Bank advances
                          
                          
                          60,240
                          
                          
                          
                          1,540
                          
                          
                          
                          5.11
                          %
                          
                          
                          68,056
                          
                          
                          
                          1,749
                          
                          
                          
                          5.14
                          %Total
      interest-bearing liabilities
                          
                          
                          731,662
                          
                          
                          
                          5,659
                          
                          
                          
                          1.55
                          %
                          
                          
                          654,754
                          
                          
                          
                          7,618
                          
                          
                          
                          2.33
                          %Demand
      deposits
                          
                          
                          121,050
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          114,152Other
      liabilities
                          
                          
                          2,542
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          3,153Stockholders'
      equity
                          
                          
                          81,870
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          83,002Total
      liabilities and stockholders' equity
                          
                          $
                          937,124
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          855,061Net
      interest income/yield
                          
                          
                          
                          
                          
                          $
                          15,095
                          
                          
                          
                          3.48
                          %
                          
                          
                          
                          
                          
                          $
                          13,366
                          
                          
                          
                          3.36
                          %





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


**Annualized


- 20 -


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. This expense is 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
provision for loan losses was $1.3 million in the second quarter of 2010, as
compared to $3.0 million in the second quarter of 2009. Management felt the
lower provision was appropriate because net loans charged off were $2.0 million
lower in the second quarter of 2010 as compared to the same period in 2009. In
the first six months of 2010, the provision for loan losses was $6.0 million,
compared to $4.0 million in the first half of 2009.





The
increase in the provision for loan losses in the first half of 2010 was
primarily due to two factors.  First, a lending relationship of $9.4
million was placed in nonaccrual during the first quarter of 2010.  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 made two changes to the historical loss
calculation of the allowance for loan losses during the first half of
2010.  For more information regarding the changes to the historical
loss calculation, see the Allowance for Loan Losses section of this Form
10-Q.  Management believes that the large increase in the provision
for the first quarter should not continue and the provision should be lower in
future periods, as evidenced by the reduced provision for the second quarter of
2010.





Net loans
charged off were $737 thousand for the second quarter of 2010 as compared to
$2.7 million for the second quarter of 2009. For the first six months of 2010
and 2009, net loans charged off were $2.2 million and $3.1 million respectively.
Net charge-offs in 2009 were impacted by a $1.4 million write-down on a real
estate construction project. On an annualized basis, net loan charge-offs were
0.69% of total loans for the first six months of 2010 compared with 0.99% for
the same period in 2009. While net loan charge-offs remain high and reflect
ongoing difficulties in the commercial real estate sector, the gradual
improvement in the economy helped reduce charge-offs in the first half of 2010.
However, management believes that net loans charged off will remain high until
the economic recovery becomes more pronounced.





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 June 30, 2010,
the Company had one restructured loan, which was still accruing
interest.  This loan is secured by commercial real estate, and the
customer entered into a forbearance agreement in 2009 and is currently in
compliance with the terms of this agreement.  Foreclosed assets
consist of real estate from foreclosures on loan collateral. 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 “past due 90 days
or more and accruing interest” status 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.


- 21 -


The
following table presents information concerning nonperforming
assets:





NONPERFORMING ASSETSJune
      30,
                  
                  
                  December
      31,
                  
                  
                  Increase2010
                  
                  
                  2009
                  
                  
                  (Decrease)(unaudited)(in
      thousands)Nonaccrual
      loansCommercial
                  
                  $
                  15
                  
                  
                  $
                  255
                  
                  
                  $
                  (240
                  )Real
      estate-construction
                  
                  
                  252
                  
                  
                  
                  524
                  
                  
                  
                  (272
                  )Real
      estate-mortgage
                  
                  
                  18,307
                  
                  
                  
                  4,109
                  
                  
                  
                  14,198Installment
      loans to individuals
                  
                  
                  103
                  
                  
                  
                  29
                  
                  
                  
                  74Total
      nonaccrual loans
                  
                  $
                  18,677
                  
                  
                  $
                  4,917
                  
                  
                  $
                  13,760Loans
      past due 90 days or more and accruing interestCommercial
                  
                  $
                  100
                  
                  
                  $
                  40
                  
                  
                  $
                  60Real
      estate-mortgage
                  
                  
                  484
                  
                  
                  
                  228
                  
                  
                  
                  256Installment
      loans to individuals
                  
                  
                  70
                  
                  
                  
                  117
                  
                  
                  
                  (47
                  )Other
                  
                  
                  5
                  
                  
                  
                  4
                  
                  
                  
                  1Total
      loans past due 90 days or more and accruing interest
                  
                  $
                  659
                  
                  
                  $
                  389
                  
                  
                  $
                  270Restructured
      loans (in compliance with modified terms)Real
      estate-mortgage
                  
                  $
                  2,480
                  
                  
                  $
                  0
                  
                  
                  $
                  2,480Total
      restructured loans (in compliance with modified terms)
                  
                  $
                  2,480
                  
                  
                  $
                  0
                  
                  
                  $
                  2,480Foreclosed
      assetsReal
      estate-construction
                  
                  $
                  5,622
                  
                  
                  $
                  5,149
                  
                  
                  $
                  473Real
      estate-mortgage
                  
                  
                  4,262
                  
                  
                  
                  2,474
                  
                  
                  
                  1,788Total
      foreclosed assets
                  
                  $
                  9,884
                  
                  
                  $
                  7,623
                  
                  
                  $
                  2,261Total
      nonperforming assets
                  
                  $
                  31,700
                  
                  
                  $
                  12,929
                  
                  
                  $
                  18,771





The large
increase in the nonaccrual loan category during the six months ended June 30,
2010 is mainly due to one credit relationship of $9.4 million or 68.31% of the
$13.8 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 $18.7 million of nonaccrual
loans at June 30, 2010, $16.4 million or 87.84% was comprised of seven credit
relationships: the $9.4 million relationship discussed above and six other
relationships of $2.1 million, $1.5 million, $1.1 million, $998 thousand, $684
thousand and $624 thousand.





Management
believes that the increase in nonperforming assets could continue to have a
negative affect on the Company’s financial position if current economic
conditions, which have been showing some signs of improvement, do not in fact
improve. As was seen in the six months ended June 30, 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, with
foreclosure considered a last resort.


As
reflected in the $18.8 million increase in nonperforming assets during the first
six months of 2010, the quality of the Company’s loan portfolio declined during
this period. Due to this decline, management has increased the allowance for
loan losses to $11.7 million as of June 30, 2010 as compared to a balance of
$7.9 million as of December 31, 2009. As of June 30, 2010, the allowance for
loan losses was 36.93% of nonperforming assets and 53.67% of nonperforming
loans. The definition of nonperforming loans is nonperforming assets less
foreclosed assets. The allowance for loan losses was 1.87% of total loans on
June 30, 2010 and 1.24% of total loans on December 31, 2009.


- 22 -


Allowance
for Loan Losses


The
allowance for loan losses is based on several components: historical loss rates,
impairment analysis of nonperforming loans, including collateral valuation, and
qualitative factors.  In evaluating the adequacy of the allowance, the
loan portfolio is divided into several pools of loans:





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 economic 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. Prior to 2010, the historical loss
calculation was based on the previous four years.  In the first
quarter of 2010, the historical loss was based on the previous nine quarters, or
all of 2008 and 2009 and the first quarter of 2010. The historical loss for the
second quarter of 2010 is based on the most recent six quarters, or all of 2009
and the first two quarters of 2010. For the second quarter of 2010, using annual
historical information, management calculated the loss history based on ten
quarters (2008, 2009, and the first two quarters of 2010) and six quarters (2009
and the first two quarters of 2010). The six-quarter loss history was $1.4
million higher than the ten-quarter loss history. In management’s opinion, the
six-quarter loss history was more appropriate as it more accurately reflects the
current economic environment. The historical loss component of the allowance
using the six-quarter loss history amounted to $4.3 million as of June 30,
2010.





Currently,
the historical loss is based on an annual calculation, rather than a quarterly
one. During the third quarter of 2010, management intends to convert the annual
calculation to a quarterly calculation. In management’s opinion, the use of a
quarterly loss history more accurately reflects the loss potential of the loan
portfolio in the current economic environment.





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 amounts 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 June 30, 2010, the impaired loan component of the
allowance amounted to $3.6 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, loan 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 and second quarters of 2010. The qualitative
component of the allowance amounted to $3.8 million as of June 30,
2010.


- 23 -


As a
result of these changes and the overall increase in nonperforming assets, the
Company added $6.0 million to the allowance for loan losses in the first six
months of 2010, with $1.3 million added during the second quarter 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


Compared
to the same period in 2009, total noninterest income was essentially flat in the
second quarter of 2010, increasing by only $27 thousand or 0.88%. In the service
charges on deposit accounts category, a decrease in overdraft fees of $117
thousand between the second quarter of 2009 and the second quarter of 2010 was
partially offset by small increases in the other service charges, commissions
and fees category. In particular, debit card and merchant processing income
increased $54 thousand and $30 thousand, respectively, mainly as a result of
increased sales focus in these areas. Income from bank owned life insurance
increased $34 thousand, or 19.58%, due to the purchase of additional policies
for newly-qualified employees. The decrease in overdraft fees was caused by
a shift in management’s strategic focus from retail checking accounts to
corporate checking accounts starting in mid-2009. Management anticipated
the second-quarter decline and expects the trend to continue in the future, due
to the continued shift in focus and as a result of regulatory changes requiring
customers to opt-in to overdraft programs.  The Company is
compensating for the projected decrease in overdraft income by pursuing new
product offerings, such as remote deposit capture and lockbox services to help
drive future noninterest income.





For the
six months ended June 30, 2010, noninterest income increased $360 thousand, or
5.94%, as compared to the same period in 2009. The overall increase in
noninterest income occurred despite a decrease of $171 thousand in overdraft fee
income.  One significant component of this overall increase was an
increase in other service charges, commissions and fees of $177 thousand, mainly
from debit card, merchant processing and ATM interchange fee
income.  In addition, income from bank owned life insurance increased
$247 thousand, or 70.25%, due to the receipt of insurance proceeds and the
purchase of additional policies.





Noninterest
Expense


For the
second quarter of 2010, noninterest expense increased only $85 thousand, or
1.07%, over the second quarter of 2009. The largest increase between the second
quarters of 2009 and 2010 was in salaries and employee benefits, which increased
$273 thousand, or 6.28%, between the two quarters. The rise in salary expense
was caused by several factors: annual reviews, additions to staff in the
Corporate Banking department in the second half of 2009, and the filling of
positions which had been vacant for some time. Legal and audit expenses also
increased significantly, more than doubling between the second quarter of 2009
and the same period in 2010. The majority of the difference was due to the need
for additional legal advice on securities and regulatory issues, as well as
advice on troubled loans. Troubled loans also caused the majority of the $75
thousand or 44.83% increase in loan expenses during the period. On the positive
side, FDIC insurance costs declined $434 thousand, or 57.80%, in the second
quarter of 2010, compared to the second quarter of 2009. $386 thousand of this
decrease was due to a special assessment on all banks based on asset size in the
second quarter of 2009.  Management does not expect the decrease in
FDIC insurance costs to continue, given the higher reserve requirements for the
DIF established by the Dodd-Frank Act.





Noninterest
expense for the six months ended June 30, 2010 was up $415 thousand, or 2.71%,
over the first six months of 2009.  As in the second quarter, the
change was driven mainly by salaries and legal expenses, partially offset by
lower FDIC insurance costs.  Also offsetting the increase in certain
expenses was a $192 thousand improvement in loss (gain) on write-down/sale of
foreclosed assets from a loss of $141 thousand for the first half of 2009 to a
gain of $51 thousand for the same period of 2010.  This improvement
was primarily due to a higher than expected sales value received on three
foreclosed properties.  The Company does not anticipate that this
trend will continue due to current stagnant real estate market.





As in
2009, management is keenly aware of the need to improve net income and continues
to monitor expenses.  This is evidenced by lower employee professional
development costs in 2010 compared to 2009.


- 24 -


Balance
Sheet Review


At June
30, 2010, the Company had total assets of $912.4 million, a decrease of 0.98%
from $921.4 million at December 31, 2009. This minimal decrease occurred despite
the payoff at maturity of $30.0 million of advances from the FHLB, funded from
available cash and equivalents. These fixed-rate FHLB advances, at market rates
when the Company obtained them, became less favorable with the significant
declines in market rates in recent years.  As the Company had planned,
these advances were paid off at maturity to improve the net interest margin. Net
loans as of June 30, 2010 were $612.7 million, a decrease of 2.34% from $627.4
million at December 31, 2009. The decrease in loans was partly due to the net
increase of $3.8 million of the allowance for loan losses.  The
Company believes it has sufficient 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 June 30, 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.





The
following table details, as of June 30, 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
                  
                  $
                  26,521,885
                  
                  
                  
                  20.8
                  %Non-subprime
                  
                  
                  101,141,568
                  
                  
                  
                  79.2
                  %$
                  127,663,453
                  
                  
                  
                  100.0
                  %Total
      loans
                  
                  $
                  624,395,821Percentage
      of Real Estate-Secured Subprime Loans to Total Loans
                  
                  
                  
                  4.25
                  %





In
addition to the subprime loans secured by real estate discussed above, as of
June 30, 2010, the Company had an additional $5.2 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 June 30, 2010 were $31.7 million, amounting
to 5.08% of the Company’s total loans at June 30, 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 $1.4 million or
12 basis points in the first two quarters 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 six months of 2010 were $937.1 million compared to $855.1
million for the first six months of 2009.  The growth in average
assets in 2010 was due mainly to the growth in average investment securities and
federal funds sold, which increased 52.14% and 137.24%, respectively, as
compared to the same period in 2009. A portion of the strong growth in
investment securities was due to the $10.0 million of funds that were in other
investments as of June 30, 2009 maturing and being replaced with investment
securities by June 30, 2010.  The increase in federal funds sold was a
result of liquidity provided by significant growth in deposits and repurchase
agreements since June 30, 2009.


- 25 -


Total
available-for-sale and held-to-maturity securities at June 30, 2010 were $188.8
million, an increase of 7.30% 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 June
30, 2010, total deposits were $24.2 million, or 3.65%, higher than the balance
of $662.5 million at December 31, 2009. Repurchase agreements and other
borrowings decreased $3.5 million, or 3.14% 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.  This decline in repurchase agreements and
other borrowings is in addition to the $30.0 million decrease in FHLB advances
discussed previously.





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 June 30, 2010.  As shown below, these
ratios were all well above the regulatory minimum levels.




2010RegulatoryMinimums
                        
                        
                        June
      30, 2010Tier
      1
                        
                        
                        4.00
                        %
                        
                        
                        12.04
                        %Total
      Capital
                        
                        
                        8.00
                        %
                        
                        
                        13.29
                        %Tier
      1 Leverage
                        
                        
                        4.00
                        %
                        
                        
                        8.69
                        %




Book
value per share was $16.65 at June 30, 2010 and $16.64 at June 30,
2009.  Cash dividends were $739 thousand or $0.15 per share in the
second quarter of 2010 and $1.3 million or $0.27 per share for the second
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 liquidity sources are available through
the use of borrowed funds if the need should arise, including secured advances
from the FHLB.  During the first six months of 2010, the Company paid
off $30.0 million of advances from the FHLB.  As of the end of the
second quarter of 2010, the Company had $237.3 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 second quarter of 2010, the Company had $35.6 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, except those provisions contained in the recently-passed Dodd-Frank
Act.While
it is too early to fully assess the impact of the Dodd-Frank Act and subsequent
regulatory rulemaking processes, the act increases regulatory supervision and
examination of bank holding companies and their banking and non-banking
subsidiaries and imposes more stringent capital requirements on bank holding
companies, as discussed below in the Risk Factors section of this Form
10-Q.   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.


- 26 -


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 million and $8.0 million over the
next three years.





As of
June 30, 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.





Off-Balance
Sheet Arrangements


As of
June 30, 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.  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 June 30,
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 June 30, 2010, non-maturing deposit liabilities totaled
$336.5 million or 49.00% 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.


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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 June 30,
2010.  The rate shock model reveals that a 50 basis point decrease in
rates would cause an approximate 0.78% annual decrease in net interest income.
The rate shock model reveals that a 50 basis point rise in rates would cause an
approximate 0.83% annual increase in net interest income and that a 100 basis
point rise in rates would cause an approximate 1.86% increase in net interest
income.






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 June 30, 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 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.





The
Dodd-Frank Act could increase the Company’s regulatory compliance burden and
associated costs, place restrictions on certain products and services, and limit
its future capital raising strategies.


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A wide
range of regulatory initiatives directed at the financial services industry have
been proposed in recent months. One of those initiatives, the Dodd-Frank Act,
was signed into law on July 21, 2010. The Dodd-Frank Act represents a sweeping
overhaul of the financial services industry within the United States and
mandates significant changes in the financial regulatory landscape that will
impact all financial institutions, including the Company and the
Bank.  The Dodd-Frank Act will likely increase the Company’s
regulatory compliance burden and may have a material adverse effect on the
Company, including by increasing the costs associated with regulatory
examinations and compliance measures. However, it is too early to fully assess
the impact of the Dodd-Frank Act and subsequent regulatory rulemaking processes
on the Company’s and the Bank’s business, financial condition or results of
operations.





Among the
Dodd-Frank Act’s significant regulatory changes, the act creates a new financial
consumer protection agency that could impose new regulations and include its
examiners in routine regulatory examinations conducted by Office of the
Comptroller of the Currency, which could increase the Company’s regulatory
compliance burden and costs and restrict the financial products and services the
Bank can offer to its customers. The act increases regulatory supervision and
examination of bank holding companies and their banking and non-banking
subsidiaries, which could increase the Company’s regulatory compliance burden
and costs and restrict the Company’s ability to generate revenues from
non-banking operations. The act imposes more stringent capital requirements on
bank holding companies, which could limit the Company’s future capital
strategies.





Other
than the additional risk factor mentioned above, as of June 30, 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 June 30, 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.





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 CORPORATIONAugust
      9, 2010
              /s/Robert F. Shuford,
Sr.Robert
      F. Shuford, Sr.Chairman,
      President & Chief Executive Officer(Principal
      Executive Officer)August
      9, 2010
              /s/Laurie D. GrabowLaurie
      D. GrabowChief
      Financial Officer & Senior Vice President/Finance(Principal
      Financial & Accounting
Officer)


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