Annual Report (Form 10-K), fiscal year 1994

Item 1. Description of Business
General
Old Point Financial Corporation (the "Company") was incorporated under the laws of Virginia on February 16, 1984, for the purpose of acquiring all the outstanding common stock of The Old Point National Bank of Phoebus (the "Bank"), in connection with the reorganization of the Bank into a one bank holding company structure. At the annual meeting of the stockholders on March 27, 1984, the proposed reorganization was approved by the requisite stockholder vote. At the effective date of the reorganization on October 1, 1984, the Bank merged into a newly formed national bank as a wholly owned subsidiary of the Company, with each outstanding share of common stock of the Bank being converted into five shares of common stock of the Company.
The Company has no other subsidiaries and does not engage in any activities other than acting as a holding company for the common stock of the Bank. The principal business of the Company is conducted through the Bank, which continues to conduct its business in substantially the same manner and from the same offices as it had done before the effective date of the reorganization. The Bank, therefore, accounts for substantially all of the consolidated assets and revenues of the Company.
The Bank is a national banking association founded in 1922. The Bank has thirteen offices in the cities of Hampton and Newport News, and in James City County, Virginia, and provides a full range of banking and related financial services, including checking, savings, certificates of deposit, and other depository services, commercial, industrial, residential real estate and consumer loan services, safekeeping services and trust and estate services.
As of December 31, 1994, the Company had assets of $277.7 million, loans (net of unearned income) of $173.7 million, deposits of $235.6 million, and stockholders' equity of $26.2 million. At year end, the Company and the Bank had a total of 234 employees, 33 of whom were part-time.
Based on 1990 census figures, the population of the Bank's trade area, which includes Hampton, Newport News, Williamsburg, and James City County was approximately 350,000. This area's economy is heavily influenced by the two largest employers; military installations and shipbuilding and ship repair. These industries are impacted by reductions in defense spending and personnel. Some of our customers are either employed at the various military installations or at the shipyard, or they derive some or all of their business from these two major employers. There are numerous military installations in the area including Fort Monroe, Langley Air Force Base, and Fort Eustis. The consolidation of the Tactical Air Command and the Strategic Air Command into the Air Combat Command at Langley has somewhat mitigated the reduction in military employment in the area. The largest private employer on the Peninsula is the Newport News Shipbuilding and Drydock Company, which currently employees approximately 20,000 people.
The banking industry is highly competitive in the Hampton/Newport News/Williamsburg area. There are approximately nine commercial banks actively engaged in business in the area in which the Bank operates, including seven major statewide banking organizations.
The Bank encounters competition for deposits and loans from banks, savings and
loan associations and credit unions in the communities in which it operates. In addition, the Bank must compete for deposits in some instances with the money market mutual funds which are marketed nationally.
The Bank is subject to regulation and examination by the Office of the Comptroller of the Currency, the Federal Reserve Board (the "Board"), and the Federal Deposit Insurance Corporation (the "FDIC").
As a bank holding company within the meaning of the Bank Holding Company Act of 1956, the Company is subject to the ongoing regulation, supervision, and examination by the Federal Reserve Board (the "Board"). The Company is required to file with the Board periodic and annual reports and other information concerning its own business operations and those of its subsidiaries. In addition, prior Board approval must be obtained before the Company can acquire (i) ownership or control of any voting shares of another bank if, after such acquisition, it would control more than 5% of such shares, or (ii) all or substantially all of the assets of another bank or merge or consolidate with another bank holding company. A bank holding company is prohibited under the Bank Holding Company Act, with limited exceptions, from engaging in activities other than those of banking or of managing or controlling banks or furnishing services to its subsidiaries.
Statistical Information
The following statistical information is furnished pursuant to the requirements of Guide 3 (Statistical Disclosure by Bank Holding Companies) promulgated under the Securities Act of 1933.
I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential
The following table presents the distribution of assets, liabilities, and shareholders' equity by major categories with related average yields/rates. In these balance sheets, nonaccrual loans are included in the daily average loans outstanding.
The following table sets forth a summary of changes in interest earned and paid attributable to changes in volume and changes in yields/rates.
Interest Sensitivity
The following table reflects the earlier of the maturity or repricing data for various assets and liabilities as of December 31, 1994.
The Company was liability sensitive as of December 31, 1994. There were $83.9 million more in liabilities than assets subject to repricing within three months. This generally indicates that net interest income should improve if interest rates fall since liabilities will reprice faster than assets. It should be noted, however, that savings deposits; which consist of interest
bearing transactions accounts, money market accounts, and savings accounts; are less interest sensitive than other market driven deposits. In a rising rate environment these deposit rates have historically lagged behind the changes in earning asset rates, thus mitigating somewhat the impact from the liability sensitivity position.
II. Investment Portfolio
Investment securities carried at $29.1 million, $30.4 million, and $27.1 million, at December 31, 1994, 1993, and 1992, respectively, were pledged to secure public deposits and securities sold under agreements to repurchase and for other purposes required or permitted by law.
The following table shows, by type and maturity, the book value and weighted average yields of investment securities at December 31, 1994.
The book value of other marketable equity securities with no stated maturity totalled $5.23 million, yielding 4.41%; $3.62 million, yielding 4.23%; and $3.76 million, yielding 5.06%; at December 31, 1994, 1993, and 1992 respectively. There were no other securities, except Federal Reserve Bank stock, which remained constant for the period at $84,850, earning a six percent (6%) dividend.
III. Loan Portfolio
The following table shows a breakdown of total loans by type at December 31 for years 1990 through 1994:
Based on Standard Industry Code, there are no categories of loans which exceed 10% of total loans other than the categories disclosed in the preceding table.
The maturity distribution and rate sensitivity of certain categories of the Bank's loan portfolio at December 31, 1994 is presented below:
The following table presents information concerning the aggregate amount of nonaccrual, past due and restructured loans as of December 31 for the years 1990 through 1994.
Loans are placed in nonaccrual status if principal or interest has been in default for a period of 90 days or more unless the obligation is both well secured and in the process of collection. A debt is "well secured" if it is secured (i) by collateral in the form of liens on or pledges of real or personal property, including securities, that have a realizable value sufficient to discharge the debt in full or (ii) by the guaranty of a financially responsible party. A debt is "in the process of collection" if collection of the debt is proceeding in due course either through legal action, including judgment enforcement procedures, or, in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status.
Potential problem loans consist of loans that, because of potential credit problems of the borrowers, have caused management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms. At December 31, 1994 such problem loans, not included in Table VIII, amounted to approximately $6.3 million. The potential problem loans included three relationships in excess of $500 thousand. The potential problem loans are generally secured by residential and commercial real estate with appraised values exceeding the principal balance of the loan.
IV. Summary of Loan Loss Experience
The determination of the balance of the Allowance for Loan Losses is based upon a review and analysis of the loan portfolio and reflects an amount which, in management's judgment, is adequate to provide for possible future losses. Management's review includes monthly analysis of past due and nonaccrual loans and detailed periodic loan by loan analyses.
The principal factors considered by management in determining the adequacy of the allowance are the growth and composition of the loan portfolio, historical loss experience, the level of nonperforming loans, economic conditions, the value and adequacy of collateral, and the current level of the allowance.
The following table shows an analysis of the Allowance for Loan Losses for the years 1990 through 1994.
The following table shows the amount of the Allowance for Loan Losses allocated to each category at December 31 for the years 1990 through 1994.
V. Deposits
The following table shows the average balances and average rates paid on deposits for the years ended December 31, 1992, 1993, and 1994.
The following table shows certificates of deposit in amounts of $100,000 or more as of December 31, 1994, 1993, and 1992 by time remaining until maturity.
VI. Return on Equity and Assets
The return on average shareholders' equity and assets, the dividend pay out ratio, and the average equity to average assets ratio for the past three years are presented below.
1994 1993 1992 __________________________________________________________________________ Return on average assets 1.00% 0.82% 0.65% Return on average equity 10.39% 8.90% 7.29% Dividend payout ratio 25.03% 28.17% 28.40% Average equity to average assets 9.59% 9.20% 8.87% __________________________________________________________________________
VII. Short Term Borrowings
The Bank periodically borrowed funds through federal funds from its correspondent banks, through the use of a demand note to the United States Treasury (Treasury Tax and Loan Deposits), and through securities sold under agreements to repurchase. The borrowings matured daily and were based on daily cash flow requirements. The borrowed amounts (in thousands) and their corresponding rates during 1994, 1993, and 1992 are presented below:
Item 2.



Item 2. Description of Property
The Bank owns the Main Office, an office building, seven branches, and two future branch sites. All of the above properties are owned directly and free of any encumbrances. The land at the Fort Monroe branch is leased by the Bank under an agreement expiring in October 2011. The remaining three branches are leased from unrelated parties under leases with renewal options which expire anywhere from 10-20 years. The Bank has received approval for a new branch which will be located at Kiln Creek Parkway near Victory Blvd. and is scheduled to open in 1995.
The Bank has noncancellable leases on premises and equipment expiring at various dates, including extensions to the year 2011. Certain leases provide for increased annual payments based on increases in real estate taxes and the Consumer Price Index.
The total approximate minimum rental commitment at December 31, 1994, under noncancellable leases is $630 thousand which is due as follows:
Year (Dollars in Thousands)
1995 $144 1996 76 1997 78 1998 79 1999 80 Remaining term of leases 173 ___ Total $630 ===
The aggregate rental expense of premises and equipment was $178 thousand, $140 thousand, and $148 thousand for 1994, 1993 and 1992, respectively.
As of December 31, 1993 the Company owned a building with an adjoining vacant lot which was held for sale and classified as Other Real Estate Owned. This property was sold on March 11, 1994.
Additional information on Other Real Estate Owned is as follows:
(Dollars in Thousands) 1994 1993 1992
Foreclosed real estate $214 $430 $ 453 In-substance foreclosed real estate --- --- 2,642 Property held for sale --- 435 500 ___ ___ _____ Total $214 $865 $3,595 === === =====
Item 3.

Item 3. Legal Proceedings
The Company is not a party to any material pending legal proceedings before any court, administrative agency, or other tribunal.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the quarter ended December 31, 1994.
Part II
Item 5.

Item 5. Market for Common Equity And Related Stockholder Matters
The common stock of Old Point Financial Corporation is not listed on an exchange and is not quoted by NASDAQ. The approximate number of shareholders of record as of December 31, 1994 was 1,364. The range of high and low prices and dividends per share of the Company's common stock for each quarter during 1994 and 1993 is presented in Part I. Item 7. of this Annual Report on Form 10-K.
Old Point National Bank is subject to certain requirements imposed by federal banking statutes and regulations. The Bank is limited in what dividends it can pay to the parent company. Pursuant to Section 33(a) of the National Bank Act, approval from the Office of the Comptroller of the Currency (OCC) must be obtained if the total of all dividends declared by the Bank in any given year exceeds the total of the Bank's net profits for that year plus the net profits after payment of dividends for the two preceding years. Accordingly, $5.6 million of retained earnings was available for payment of dividends from the Bank to the Company at December 31, 1994.
Item 6.

Item 6. Selected Financial Data
The following table summarizes the Company's performance for the past five years.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is intended to assist readers in understanding and evaluating the consolidated results of operations and financial condition of the Company. This discussion should be read in conjunction with the financial statements and other financial information contained elsewhere in this report. The analysis attempts to identify trends and material changes which occurred during the period presented.
EARNINGS SUMMARY Net income was $2.77 million, or $2.20 per share in 1994 compared to $2.21 million, or $1.77 per share in 1993 and $1.74 million, or $1.41 per share in 1992. Return on average assets was 1.00% in 1994, 0.82% in 1993, and 0.65% in 1992. Return on average equity was 10.39% in 1994, 8.90% in 1993 and 7.29% in 1992. For the past five years return on average assets has averaged 0.81% and return on average equity has averaged 8.90%. Highlights (found in Part II, Item 6 of this Annual Report on Form 10-K) on page 1 summarizes the Company's performance for the past five years.
NET INTEREST INCOME The principal source of earnings for the Company is net interest income. Net interest income is the difference between interest and fees generated by earning assets and interest expense paid to fund them. Net interest income, on a tax equivalent basis, was $11.98 million in 1994, up $169 thousand, or 1% from $11.81 million in 1993 which was up $233 thousand, or 2% from $11.58 million in 1992. Net interest income is affected by variations in interest rates and the volume and mix of earning assets and interest-bearing liabilities. The net interest yield decreased to 4.63% in 1994 from 4.73% in 1993 which was up from 4.63% in 1992.
Tax equivalent interest income for 1994 increased $52 thousand. Average earning assets grew $9.02 million, or 4%. Despite this volume growth interest income increased only slightly due to a 26 basis point decline in the average rate earned. In 1994, total average loans increased $7.41 million, or 5%, while average investment securities increased $5.70 million, or 7%.
Interest expense declined $118 thousand, or 2%, in 1994 due to an 18 basis point decline in the average rate paid. Based on average balances, the mix of interest bearing liabilities shifted in 1994 to lower paying savings and interest checking accounts from higher paying certificates of deposit.
PROVISION/ALLOWANCE FOR LOAN LOSSES Provision for loan losses is a charge against earnings necessary to maintain the allowance for loan losses at a level consistent with management's evaluation of the loan portfolio. The 1994 provision was $25 thousand compared to $250 thousand in 1993 and $2.30 million in 1992. Loans charged off during 1994 totalled $611 thousand compared to $1.59 million in 1993 and $2.05 million in 1992, while recoveries amounted to $540 thousand in 1994, $310 thousand in 1993 and $235 thousand in 1992. Net loans charged off to year-end loans were 0.04% in 1994, 0.85% in 1993, and 1.12% in 1992. The allowance for loan losses, as a percentage of year-end loans, was 1.52% in 1994, 1.79% in 1993, and 2.30% in 1992.
As of December 31, 1994 nonperforming assets were $3.17 million, down from $6.19 million at year-end 1993 which was down from $8.26 million at year- end 1992. Nonperforming assets consist of loans in nonaccrual status and foreclosed real estate. The 1994 total consisted of foreclosed real estate of $214 thousand and $2.96 million in nonaccrual loans. The foreclosed real estate consisted of $137 thousand in foreclosed commercial property, and $77 thousand in 1-4 family residences. Nonaccrual loans consisted of $1.25 million in commercial loans and $1.71 million in mortgage loans. The Company has aggressively dealt with these credits and specific action plans have been developed for each of these classified loans to address any deficiencies. Loans still accruing interest but past due 90 days or more increased to $837 thousand as of December 31, 1994 compared to $458 thousand as of December 31, 1993 and $2.24 million as of December 31, 1992.
The allowance for loan losses is analyzed for adequacy on a quarterly basis to determine the required amount of provision for loan losses. A loan- by-loan review is conducted on all significant classified commercial and mortgage loans. Inherent losses on these individual loans are determined and an allocation of the allowance is provided. Smaller nonclassified commercial and mortgage loans and all consumer loans are grouped by homogeneous pools with an allocation assigned to each pool based on an analysis of historical loss and delinquency experience, trends, economic conditions, underwriting standards, and other factors.
OTHER INCOME Other income increased $140 thousand, or 3% in 1994 over 1993 compared to a decrease of $30 thousand, or 1% in 1993 over 1992. Trust income rose 10% in 1994 compared to an increase of 13% in 1993. This increase was due primarily to growth in trust assets under management. Service charges on deposits remained constant in 1994 compared to a decrease of 2% in 1993. Other service charges, commissions and fees were down in 1994 due to lower mortgage brokerage fees. Security gains were up substantially in 1994. These security gains were the result of the sale of investment securities as an asset/liability strategy to reduce the interest rate risk in the portfolio. These securities had been reclassified as "available for sale" as of January 1, 1994 in conjunction with the implementation of SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities".
OTHER EXPENSES Other expenses decreased $415 thousand, or 3%, in 1994 from 1993 after increasing $1.63 million, or 15%, in 1993 over 1992. Salaries and employee benefits increased 4% in 1994 due to normal salary increases and increased profit sharing contributions. Equipment expense decreased 7%, due to the cancellation of service contracts on certain computer equipment. Other operating expenses decreased 15% due to the reduction in costs associated with loan administration and foreclosed properties.
ASSETS At December 31, 1994, the Company had total assets of $277.7 million, up 1% from $273.9 million at December 31, 1993. Average assets in 1994 were $278.4 million compared to $270.7 million in 1993. The marginal growth in assets in 1994 and 1993 was due to the strong competition for deposits in the Company's market area.
LOANS The Company experienced very strong loan demand in 1994. Total loans (net of unearned income) as of December 31, 1994 were $173.7 million, up 16% from $150.3 million at December 31, 1993. All categories of loans increased during 1994 except tax exempt loans and real estate - construction loans. Footnote 3 of the financial statements details the loan volume by category for the past three years.
INVESTMENT SECURITIES At December 31, 1994 total investment securities were $83.5 million, down 16% from $99.3 million on December 31, 1993. The decline in the investment portfolio was due to the growth in loans as maturing securities were reinvested in loans. The Company implemented Statement of Financial Accounting Standards (SFAS) 115, "Accounting for Certain Investments in Debt and Equity Securities" beginning January 1, 1994. At that time the Company elected to classify its entire investment securities portfolio as available for sale. During the first quarter of 1994 the Company sold certain securities and the proceeds were reinvested in loans. The goal of the Company is to provide maximum return on the investment portfolio within the framework of its asset/liability objectives. These objectives include managing interest sensitivity, liquidity and pledging requirements.
DEPOSITS At December 31, 1994, total deposits amounted to $235.6 million, up 1% from $234.2 million on December 31, 1993. Noninterest bearing deposits decreased $2.5 million, or 6%, in 1994 from 1993. Savings deposits decreased $5.0 million, or 5%, in 1994 from 1993. Certificates of Deposit increased $8.9 million, or 10% in 1994 over 1993. Due to the increase in interest rates, customers are now investing in certificates of deposits.
STOCKHOLDERS' EQUITY Total stockholders' equity as of December 31, 1994 was $26.2 million, up 1% from $25.8 million on December 31, 1993. The Company is required to maintain minimum amounts of capital under banking regulations. Under the regulations Total Capital is composed of core capital (Tier 1) and supplemental capital (Tier 2). Tier 1 capital consists of common stockholder's equity less goodwill and excluding SFAS 115 market adjustment for available for sale securities. Tier 2 capital consists of certain qualifying debt and a qualifying portion of the allowance for loan losses. The following is a summary of the Company's capital ratios for 1994, 1993, and 1992.
1994 Regulatory Requirements 1994 1993 1992 Tier 1 4.00% 16.32% 17.16% 14.79% Total Capital 8.00% 17.57% 18.42% 16.05% Tier 1 Leverage 3.00% 10.00% 9.32% 9.02%
Year-end book value was $20.75 in 1994 and $20.60 in 1993. Cash dividends were $693,828 or $.55 per share in 1994 and $624,002 or $.50 per share in 1993. The common stock of the Company has not been extensively traded. The stock is not listed on an exchange and is not quoted by NASDAQ.
Bid and ask prices are not available for the Company. The volume of trading of the stock is therefore limited. The prices below are based upon a limited number of transactions known to Management during the past two years. There were 1,364 stockholders of the Company as of December 31, 1994. This stockholder count does not include stockholders who hold their stock in a nominee registration. The following is a summary of the dividends paid and market price on Old Point Financial Corporation common stock for 1994 and 1993. On May 14, 1993 the company paid a 100% stock dividend. All prior dividends and stock prices have been restated to reflect this stock dividend.
LIQUIDITY Liquidity is the ability of the Company to meet present and future obligations through the acquisition of additional liabilities or sale of existing assets. Management considers the liquidity of the Company to be adequate. Sufficient assets are maintained on a short-term basis to meet the liquidity demands anticipated by Management. In addition, secondary sources are available through the use of borrowed funds if the need should arise.
EFFECTS OF INFLATION Management believes that the key to achieving satisfactory performance in an inflationary environment is its ability to maintain or improve its net interest margin and to generate additional fee income. The Company's policy of investing in and funding with interest-sensitive assets and liabilities is intended to reduce the risks inherent in a volatile inflationary economy.
Item 8.


Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and related footnotes of the Company are presented below followed by the financial statements of the parent.
Eggleston, Smith, Hall, Cotman & Company Certified Public Accountants and Consultants
Independent Auditors' Report
To the Board of Directors Old Point Financial Corporation Hampton, Virginia
We have audited the accompanying consolidated balance sheets of Old Point Financial Corporation and subsidiary as of December 31, 1994, 1993 and 1992, and the related consolidated statements of income, cash flows and changes in stockholders' equity for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects, the consolidated financial position of Old Point Financial Corporation and subsidiary as of December 31, 1994, 1993 and 1992, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 1. to the financial statements, Old Point Financial Corporation changed its method of accounting for debt and equity securities effective January 1, 1994.
January 13, 1995 Newport News, Virginia
/s/ Eggleston, Smith, Hall, Cotman & Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES _______________________________________ The accounting and reporting policies of Old Point Financial Corporation and its subsidiary conform to generally accepted accounting principles and to general practice within the banking industry. The following is a summary of significant accounting and reporting policies:
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Old Point Financial Corporation ("the Company") and its subsidiary The Old Point National Bank of Phoebus ("the Bank"). All significant intercompany balances and transactions have been eliminated in consolidation.
INVESTMENT SECURITIES: The Corporation adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115), for the year ended December 31, 1994. This statement addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. Those investments are to be classified in three categories and accounted for as follows:
- Held to maturity - Debt securities for which the Company has the positive intent and ability to hold to maturity are classified as held to maturity securities and reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity.
- Trading - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading account securities and reported at their fair values. Unrealized gains and losses on trading account securities are included immediately in income.
- Available for sale - Debt and equity securities not classified as either held to maturity securities or trading account securities are classified as available for sale securities and recorded at fair value, with unrealized gains and losses excluded from income and reported in a separate component of equity until realized. Gains and losses on the sale of available for sale securities are determined using the specific identification method. Premiums and discounts are recognized in interest income using the interest method over the period to maturity.
Prior to the adoption of SFAS 115, debt securities held for investment were recorded at cost, adjusted for amortization of premiums and accretion of discounts using the interest method. Gains and losses arising from the sale of investment securities (specific identification basis) were recognized upon realization. Unrealized gains or losses due to market fluctuations were not recognized unless, in the opinion of management, a permanent impairment of value had occurred.
INTEREST ON LOANS: Unearned interest on installment loans made prior to October, 1991 is credited to operations over the life of the loans, using the sum-of-the- months-digits method. For all other loans, interest is accrued daily on the outstanding balances. Accrual of interest is discontinued on a loan when management believes, after considering collection efforts and other factors, that the borrower's financial condition is such that collection of interest is doubtful.
LOAN ORIGINATION FEES AND COSTS: Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield on the related loan.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is generated by direct charges against income and is available to absorb loan losses. The allowance is based upon management's periodic evaluation of changes in the overall credit worthiness of the loan portfolio, economic conditions in general, and the effect of these conditions upon the financial status of specific borrowers and other factors.
The Bank is subject to regulation by the Office of the Comptroller of the Currency. They may require that the Bank adjust its allowance for loan losses upon request.
OTHER REAL ESTATE OWNED: Other real estate owned is carried at the lower of cost or estimated fair value and consists of foreclosed real property, in-substance foreclosed property, and other property held for sale. In-substance foreclosed property is property where the borrower has little or no remaining equity in the property, where repayment can only be expected to come from the operation or sale of the property, and when the borrower has effectively abandoned control of the property or it is doubtful that the borrower will be able to rebuild equity in the property. The estimated fair value is reviewed periodically by management and any write-downs are charged against current earnings.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated on both straight-line and accelerated methods and are charged to expense over the estimated useful lives of the related assets. Cost of maintenance and repairs are charged to expense as incurred and improvements are capitalized.
INCOME TAXES: Income taxes are provided based upon income reported in the statements of income (after exclusion of non-taxable income such as interest on state and municipal securities). The income tax effect resulting from timing differences between financial statement pre-tax income and taxable income is deferred to future periods.
PENSION PLAN: The Bank has a non-contributory defined benefit pension plan covering substantially all of its employees. Benefits are based on years of service and average earnings during the highest average sixty-month period during the final one hundred and twenty months of employment.
The Bank's policy is to fund the maximum amount of contributions allowed for tax purposes. The Bank does accrue an amount equal to its actuarially computed obligation under the plan.
The net periodic pension expense includes a service cost component, interest on the projected benefit obligation, return on plan assets and the effect of deferring and amortizing certain actuarial gains and losses and the unrecognized net transition asset over fifteen years.
TRUST ASSETS AND INCOME: Assets held by the Trust Department are not included in the financial statements, since such items are not assets of the Bank. In accordance with industry practice, trust service income is recognized primarily on the cash basis. Reporting such income on the accrual basis would not materially effect net income.
STOCK SPLIT: On May 14, 1993, the Board of Directors authorized a two for one stock split effected in the form of a 100 percent stock dividend. All earnings per share amounts and share amounts included in the financial statements have been adjusted for the stock split. An amount equal to the $5 par value of the additional common shares has been transferred from retained earnings to common stock. In addition, a transfer has been made from retained earnings to capital surplus for an equal amount.
RECLASSIFICATIONS: Certain amounts in the financial statements have been reclassified to conform with classifications adopted in the current year.
NOTE 2. INVESTMENT SECURITIES _____________________________ At December 31, 1994, the investment securities portfolio is composed of securities classified as held to maturity and available for sale, in conjunction with the adoption of SFAS 115. Investment securities held to maturity are carried at cost, adjusted for amortization of premiums and accretions of discounts, and investment securities available for sale are carried at market value. SFAS 115 does not allow retroactive restatement, accordingly, the investment securities portfolio at December 31, 1993 and 1992, are carried at cost, adjusted for amortization of premiums and accretion of discounts.
Investment securities carried at $29.1 million, $30.4 million, and $27.1 million, at December 31, 1994, 1993, and 1992, respectively, were pledged to secure public deposits and securities sold under agreements to repurchase and for other purposes required or permitted by law.
The amortized cost and approximate market values of investment securities at December 31, 1994 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
___________________________________________________________________________ December 31, 1994 Amortized Market Cost Value (Dollars in Thousands)
Due in one year or less $15,871 $15,782 Due after one year through five years 57,916 55,307 Due after five years through ten years 5,761 5,716 Due after ten years 1,472 1,522 ______ ______ Total debt securities 81,020 78,327 Other securities without stated maturity 5,412 5,190 ______ ______ Total investment securities $86,432 $83,517
The proceeds from the sales and maturities of investment securities and securities available for sale, and the related realized gains and losses are shown below:
NOTE 3. LOANS _____________ At December 31, loans before allowance for loan losses consisted of:
Most of the Bank's lending activity is with customers located within Virginia.
Information concerning loans which are contractually past due or in non- accrual status is as follows:
The Bank has had, and may be expected to have in the future, banking transactions in the ordinary course of business with directors, executive officers, their immediate families, and companies in which they are principal owners (commonly referred to as related parties), on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others. The aggregate direct and indirect loans of these persons totaled $1.5 million, $254 thousand, and $2.5 million at December 31, 1994, 1993 and 1992, respectively. These totals do not include loans made in the ordinary course of business to other companies where a director or executive officer of the Bank was also a director or officer of such company but not a principal owner. None of the directors or executive officers had direct or indirect loans exceeding 10% of stockholders' equity at December 31, 1994.
NOTE 4. ALLOWANCE FOR LOAN LOSSES _________________________________ Changes in the allowance for loan losses are as follows:
NOTE 5. PREMISES AND EQUIPMENT ______________________________ At December 31, premises and equipment consisted of:
NOTE 6. OTHER REAL ESTATE OWNED _______________________________ Other real estate owned consisted of the following at December 31:
NOTE 7. INDEBTEDNESS ____________________ The Bank's short-term borrowings include federal funds purchased, securities sold under repurchase agreements and United States Treasury demand Notes. The federal funds purchased and securities sold under repurchase agreements are held under various maturities and interest rates. The United States Treasury Demand Notes are subject to call by the United States Treasury with interest paid monthly at the rate of 25 basis points (1/4%) below federal funds rate.
NOTE 8. STOCK OPTION PLAN _________________________ The Company has stock option plans with 75,220 shares of common stock reserved for options to key employees. Option prices are the fair market value of the common stock on the date the options were granted.
Details of the number of shares and average prices are as follows:
NOTE 9. INCOME TAXES ____________________ The components of income tax expense are as follows:
The items that caused timing differences affecting deferred income taxes are as follows:
A reconciliation of the "expected" Federal income tax expense on income before income taxes with the reported income tax expense follows:
NOTE 10. LEASE COMMITMENTS __________________________ The Bank has noncancellable leases on premises and equipment expiring at various dates, including extensions to the year 2011. Certain leases provide for increased annual payments based on increases in real estate taxes and the Consumer Price Index.
The total approximate minimum rental commitment at December 31, 1994, under noncancellable leases is $630 which is due as follows:
Year (Dollars in Thousands) 1995 $144 1996 76 1997 78 1998 79 1999 80 Remaining term of leases 173 ___ Total $630 ===
The aggregate rental expense of premises and equipment was $178 thousand, $140 thousand and $148 thousand for 1994, 1993 and 1992, respectively.
NOTE 11. PENSION PLAN _____________________ The following table sets forth the Pension Plan's funded status and amounts recognized in the Bank's financial statements at December 31:
The Bank made contributions to the Plan as follows:
(Dollars in Thousands) 1994 $229 1993 179 1992 48
The actuarial present value of benefits and obligations were determined by use of the following assumptions:
Expected Discount Compensation Long Term Rate Increase Rate of Return 1994 7 1/2% 6 1/2% 7 1/2% 1993 8% 7% 8% 1992 8% 7% 8%
NOTE 12. PROFIT SHARING _______________________ The Bank has a defined contribution profit sharing and thrift plan covering substantially all of its employees. The Bank may make profit sharing contributions to the plan as determined by the Board of Directors. In addition, the Bank matches thrift contributions by employees fifty cents for each dollar contributed. Expenses related to the plan totaled $196 thousand, $157 thousand, and $124 thousand in 1994, 1993 and 1992, respectively.
NOTE 13. COMMITMENTS AND CONTINGENCIES ______________________________________ In the normal course of business, the Bank makes various commitments and incurs certain contingent liabilities. These commitments and contingencies represent off-balance sheet risk for the Bank. To meet the financing needs of its customers, the Bank makes lending commitments under commercial lines of credit, home equity loans and various construction and development loans. The Bank also incurs contingent liabilities related to irrevocable letters of credit.
At December 31, 1994, the Bank had the following off-balance sheet items:
Commitments to extend credit: (Dollars in Thousands) Home equity lines of credit $8,937 Construction and development loans committed but not funded 6,694 Other lines of credit (principally commercial) 9,815 ______ $25,446 ======
Irrevocable letters of credit $ 1,475 ======
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank, upon extension of credit is based on management's credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. Most guarantees extend for less than 2 years and expire in decreasing amounts through 1996. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Bank holds various collateral supporting those commitments for which collateral is deemed necessary.
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS ____________________________________________ The estimated fair value of the Bank's financial instruments at December 31, 1994 are as follows:
Carrying Fair Amount Value
(Dollars in Thousands) Cash and due from banks $ 8,941 $ 8,941 Federal funds sold 247 247 Investment securities 919 918 Investment securities available for sale 82,599 82,599 Loans, net of allowances for loan losses 171,094 165,575
Deposits: Non-interest bearing deposits 37,086 37,086 Savings deposits 96,986 96,986 Certificates of Deposit 101,527 100,740
Securities sold under repurchase agreement 13,694 13,694
Interest bearing U.S. Treasury demand notes and other liabilities for borrowed money 1,162 1,162
Commitments to extend credit 25,446 25,446
Irrevocable letters of credit 1,475 1,475
The above presentation of fair values are required by Statement on Financial Accounting Standards No. 107 "Disclosures about Market Values of Financial Instruments". The fair values shown do not necessarily represent the amounts which would be received on sale or other disposition of the instruments.
The carrying amounts of cash and due from banks, federal funds sold, demand and savings deposit and securities sold under repurchase agreements represent items which do not present significant market risks, are payable on demand or are of such short duration that market value approximates carrying value.
Investment securities are valued at the quoted market price for the individual securities held.
The fair value of loans is estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers.
Time deposits are presented at estimated fair value using rates currently offered for deposits of similar remaining maturities.
NOTE 15. REGULATORY MATTERS The Company is required to maintain minimum amounts of capital to total "risk weighted" assets, as defined by the banking regulators. At December 31, 1994, the Company is required to have minimum Tier 1 and Total Capital ratios of 4.00% and 8.00% respectively. The Company's actual ratios at that date were 17.57% and 16.32%, respectively. The Company's leverage ratio at December 31, 1994, was 10.00%.
The following are the summarized financial statements of the Company.
Accounting Rule Changes
In February 1992, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which supersedes SFAS No. 96. SFAS No. 109 requires that an asset and liability approach for accounting for income taxes be adopted for fiscal years beginning after December 15, 1992. The objective of SFAS No. 109 is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. As a result, the Company adopted SFAS No. 109 in 1993, and changed from the deferred method of accounting for income taxes. The effect of this change on 1993 earnings was a reduction in income of $98 thousand, or $0.08 per share.
The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan, addressing the accounting for impaired loans. This Standard also clarifies the existing accounting for in-substance foreclosures. Under the new impairment standard and related amendments to Statement No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings," a collateral dependent real estate loan (i.e., a loan for which repayment is expected to be provided solely by the underlying collateral) would be reported as other real estate owned (OREO) only if the lender had taken possession of the collateral. As a result of these amendments, $1.51 million in real estate loans previously carried as in- substance foreclosed and reported as other real estate owned have been reclassified to their respective loan categories.
Effective January 1, 1994, the Company implemented Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. This Standard requires the segregation of investment securities at the time of purchase into three categories; held to maturity, available for sale, or trading securities, and stipulates the handling of realized and unrealized gains and losses on those securities as well as treatment of transfers between categories. The Company elected to classify its existing investment portfolio in available for sale with unrealized gains and losses excluded from income and reported as a net after tax amount in a separate component of stockholders' equity until realized at which time any gains or losses are reported in current earnings.
Regulatory Requirements and Restrictions
For the reserve maintenance period in effect at December 31, 1994, 1993 and 1992 the bank was required to maintain with the Federal Reserve Bank of Richmond an average daily balance totalling approximately $4.9 million, $4.6 million, and $4.3 million respectively.
Item 9.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.



Item 10. Directors and Executive Officers of the Registrant
The eleven persons named below, all of whom currently serve as directors of the Company will be nominated to serve as directors until the 1996 Annual Meeting, or until their successors have been duly elected and have qualified.
There is one family relationship among the directors and executive officers. Mr. Jordan is the father-in-law of Mr. Ishon. None of the directors serves as a director of any other company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.
There were no delinquent Securities and Exchange Form 4 filings during 1994.
In addition to the 2 executive officers included in the preceding list of directors, the persons listed below were executive officers of the Company or its subsidiary as of December 31, 1994.
Executive Principal Officer Occupation For Name and (Age) Since (1) Past Five Years ______________________________________________________________________________ Louis G. Morris (40) 1988 Senior Vice President and Treasurer Old Point Financial Corporation
Cary B. Epes (46) 1993 Senior Vice President Old Point Financial Corporation
W. Rodney Rosser (54) 1989 Senior Vice President and Secretary Old Point Financial Corporation
Margaret P. Causby (44) 1992 Senior Vice President Old Point National Bank
Patricia A. Orendorff (48) 1994 Senior Vice President and Cashier Old Point National Bank ______________________________________________________________________________
Each of these executive officers owns less than 1% of the stock of the Company.
(1) Prior to employment with the Company, Cary B. Epes was Vice President and Commercial Account Manager at Crestar Bank. All other executive officers served in virtually the same capacity with the Company and/or the Bank prior to appointment as an executive officer.
Item 11.

Item 11. Executive Compensation
Cash Compensation
The following table presents all compensation paid or accrued by the Company and the Bank to the Company's Chief Executive Officer and each executive officer whose salary and bonus for 1994 exceeds $100,000. Mr. Robert F. Shuford is compensated by the Company and Mr. John G. Sebrell is compensated by the Bank.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
Security ownership of certain beneficial owners and management is detailed in Part III, Item 10. of this Annual Report on Form 10-K.
Item 13.

Item 13. Certain Relationships and Related Transactions
Some of the Company directors, executive officers, and members of their immediate families, and corporations, partnerships and other entities of which such persons are officers, directors, partners, trustees, executors or beneficiaries, are customers of the Bank. As of December 31, 1994, borrowing by all policy making officers and directors amounted to $1.48 million. This amount represented 5.6% of the total equity capital accounts of the Company as of December 31, 1994. All loans and commitments to lend included in such transactions were made in the ordinary course of business, upon substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than normal risk of collectibility or present other unfavorable features. It is the policy of the Bank to provide loans to officers who are not executive officers and to employees at more favorable rates than those prevailing at the time for comparable transactions with other persons. These loans do not involve more than the normal risk of collectibility or present other unfavorable features. The Bank expects to have in the future similar banking transactions with directors, officers, principal stockholders and their associates.
The law firm of Jordan, Ishon and Jordan, P.C. serves as legal counsel to the Bank. Mr. Eugene M. Jordan is a member of the firm. During 1994, the firm received from the Bank a retainer and fees totalling $40,435. The firm also received additional fees for acting as trustee on foreclosures of collateral held by the Bank totalling $13,605, however, these fees were paid by the purchasers of the collateral and not the Bank. In addition, Hampton Stationery, of which John Cabot Ishon is the owner, provided furniture and supplies to the Bank in the amount of $50,889 during 1994. Geddy, Harris & Geddy, of which Stephen D. Harris is a partner, also provided legal services to the Bank during 1994.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
A.1 Financial Statements:
The following audited financial statements are included in Part II, Item 8, of this Annual Report on Form 10-K.
Consolidated Balance Sheets - December 31, 1994, 1993 and 1992 Consolidated Statements of Income Years Ended December 31, 1994, 1993 and 1992 Consolidated Statements of Changes in Stockholders' Equity Years Ended December 31, 1994, 1993 and 1992 Consolidated Statements of Cash Flows Years Ended December 31, 1994, 1993 and 1992 Notes to Financial Statements Auditor's Report
A.2 Financial Statement Schedules:
Schedule Location Average Balance Sheets, Net Interest Income and Rates Part I, Item 1 Analysis of Change in Net Interest Income Part I, Item 1 Interest Sensitivity Analysis Part I, Item 1 Investment Securities Part I, Item 1 Investment Security Maturities & Yields Part I, Item 1 Loans Part I, Item 1 Maturity Schedule of Selected Loans Part I, Item 1 Nonaccrual, Past Due and Restructured Loans Part I, Item 1 Analysis of the Allowance for Loan Losses Part I, Item 1 Allocation of the Allowance for Loan Losses Part I, Item 1 Deposits Part I, Item 1 Certificates of Deposit of $100,000 and more Part I, Item 1 Return on Average Equity Part I, Item 1 Short Term Borrowings Part I, Item 1 Lease Commitments Part I, Item 1 Other Real Estate Owned Part I, Item 1 Selected Financial Data Part II, Item 6 Capital Ratios Part II, Item 7 Dividends Paid and Market Price of Common Stock Part II, Item 7 Proceeds from sales and maturities of securities Part II, Item 8 Premises and Equipment Part II, Item 8 Stock Option Plan Part II, Item 8 Components of Income Tax Expense Part II, Item 8 Reconciliation of Expected and Reported Income Tax Expense Part II, Item 8 Pension Plan Part II, Item 8 Commitments and Contingencies Part II, Item 8 Fair Value of Financial Instruments Part II, Item 8 Directors and Executive Officer Part III, Item 10 Executive Compensation Part III, Item 11
A.3 Exhibits:
3 Articles of Incorporation and Bylaws are incorporated herein by reference to Registration Statement (Form S-14) No. 2-89581. 4 Not Applicable 9 Not Applicable 10 Not Applicable 11 Not Applicable 12 Not Applicable 13 Not Applicable 18 Not Applicable 19 Not Applicable 22 Subsidiaries of the Registrant 23 Not Applicable 24 Consent of Independent Certified Public Accountants 25 Powers of Attorney 27 Financial Data Schedule 28 Not Applicable 29 Not Applicable
B. Reports on Form 8-K:
No Reports on Form 8-K were filed during the fourth quarter of 1994.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 27th day of March, 1995. OLD POINT FINANCIAL CORPORATION
/s/Robert F. Shuford Robert F. Shuford, President
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in their capacities on the 25th day of March, 1995.
Signature Title
/s/Robert F. Shuford President and Director Robert F. Shuford Principal Executive Officer
/s/Louis G. Morris Senior Vice President and Treasurer Louis G. Morris Principal Financial & Accounting Officer
/s/Richard F. Clark * Richard F. Clark Director
/s/Gertrude S. Dixon * Gertrude S. Dixon Director
/s/Russell S. Evans, Jr. * Russell S. Evans, Jr. Director
/s/G. Royden Goodson, III Royden Goodson, III Director
/s/Dr. Arthur D. Greene Dr. Arthur D. Greene Director
/s/Steven D. Harris * Steven D. Harris Director
/s/John Cabot Ishon * John Cabot Ishon Director
/s/Eugene M. Jordan * Eugene M. Jordan Director
/s/John B. Morgan * John B. Morgan Director
/s/John G. Sebrell * John G. Sebrell Executive Vice President and Director
As filed with the Securities and Exchange Commission on March 27, 1995
Commission File No. 0-12896
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
For the fiscal year ended December 31, 1994
OLD POINT FINANCIAL CORPORATION
EXHIBITS
INDEX OF EXHIBITS
Exhibit No.
3 Articles of Incorporation and Bylaws are incorporated herein by reference to Registration Statement (Form S-14) No. 2-89581.
4 Not Applicable 9 Not Applicable 10 Not Applicable 11 Not Applicable 12 Not Applicable 13 Not Applicable 18 Not Applicable 19 Not Applicable 22 Subsidiaries of the Registrant 49 23 Not Applicable 24 Consent of Independent Certified Public Accountants 50 25 Powers of Attorney 51 27 Financial Data Schedule 62 28 Not Applicable 29 Not Applicable