Old Point Releases Third Quarter 2021 Results and Announces Share Repurchase Program
Mar 29, 2022
2 min read
Old Point Financial Corporation (the Company or Old Point) (NASDAQ "OPOF") reported net income of $1.9 million and earnings per diluted common share of $0.36 for the quarter ended September 30, 2021, as compared to net income of $1.1 million and earnings per diluted common share of $0.21 for the third quarter of 2020. Net income for the nine months ended September 30, 2021 and 2020 was $6.8 million, or $1.29 earnings per diluted common share, and $4.8 million, or $0.93 earnings per diluted common share, respectively.
"Old Point continues to execute on strategic initiatives while maintaining strong asset quality, liquidity, and capital levels," said Robert Shuford, Jr., Chairman, President, and CEO of the Company and Old Point National Bank (the Bank). "We are focused on growing earning assets, enhancing fee income, controlling operating expenses, and improving efficiencies while investing in people and technology. Top line revenues continue to show strong performance, increasing 10.3% year over year. Efficiencies of scale provided though the implementation of our digital and technology roadmap are allowing us to redeploy resources, fueling the organic and strategic growth of the Company. We, like the communities we serve, have encountered, and still face pandemic-related challenges, but we have grown stronger, and more resilient, and we believe we are well positioned for improving economic conditions."
Highlights of the quarter are as follows:
- Total assets were $1.3 billion at September 30, 2021, growing $85.4 million or 7.0% from December 31, 2020.
- Net loans grew $3.7 million from December 31, 2020. PPP loans outstanding at September 30, 2021 were $36.3 million compared to $86.0 million at December 31, 2020. Excluding the decline in PPP loans outstanding, net loans held for investment (non-GAAP) grew $53.4 million, or 7.2%, from December 31, 2020 to September 30, 2021.
- Deposits grew $83.5 million to $1.2 billion at September 30, 2021 from December 31, 2020.
- Non-performing assets (NPAs) decreased to $1.4 million at September 30, 2021 compared to $2.0 million at December 31, 2020 and $5.7 million as of September 30, 2020. NPAs as a percentage of total assets was 0.10% at September 30, 2021, which compared to 0.16% at December 31, 2020 and 0.45% at September 30, 2020.
- Average earning assets year to date grew $116.7 million, or 11.0%, to $1.2 billion as of September 30, 2021 compared to $1.1 billion as of September 30, 2020.
- Book value per share and tangible book value per share (non-GAAP) at September 30, 2021 increased 0.7%, over June 30, 2021 and 2.9% and 3.0%, respectively from September 30, 2020.
- Net interest income was $9.9 million for the third quarter of 2021, increasing from $9.1 million for the prior quarter and $8.5 million for the third quarter of 2020.
- Net interest margin improved to 3.24% for the third quarter of 2021 from 3.10% for the second quarter of 2021 and 2.91% for the third quarter of 2020.
For more information about financial measures that are not calculated in accordance with GAAP, please see "Non-GAAP Financial Measures" and "Reconciliation of Certain Non-GAAP Financial Measures" below.
Share Repurchase Program
The Company's Board of Directors has authorized a share repurchase program to repurchase up to 10% of the Company's issued and outstanding common stock through November 30, 2022. Repurchases under the program may be made through privately negotiated transactions or open market transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 under the Securities Exchange Act of 1934, as amended, and shares repurchased will be returned to the status of authorized and unissued shares of common stock. The timing, number and purchase price of shares repurchased under the program, if any, will be determined by management in its discretion and will depend on a number of factors, including the market price of the shares as a percentage of tangible book value, general market and economic conditions, applicable legal requirements and other conditions, and there is no assurance that the Company will purchase any shares under the program.
Balance Sheet and Asset Quality
Total assets of $1.3 billion as of September 30, 2021 increased by $85.4 million from December 31, 2020. Net loans held for investment increased $3.7 million, or 0.5% from December 31, 2020 to $830.5 million at September 30, 2021. The change in net loans held for investment was primarily attributed to a decline of $49.7 million in the PPP loan segment due to forgiveness of $98.0 million of PPP loans, partially offset by new PPP originations of $48.3 million. Loans held for investment, excluding PPP, grew 7.2%, or $53.4 million, driven by loan growth in the following segments: commercial real estate of $32.0 million, construction, land development, and other land loans of $19.2 million, and automobile of $4.2 million. Securities available for sale, at fair value, increased $26.0 million from December 31, 2020 to $212.4 million at September 30, 2021, as additional liquidity provided by growth in deposit accounts was deployed in the Company's investment portfolio.
Total deposits of $1.2 billion as of September 30, 2021 increased $83.5 million, or 7.8%, from December 31, 2020. Noninterest-bearing deposits increased $32.4 million, or 9.0%, savings deposits increased $71.7 million, or 14.0%, and time deposits decreased $20.6 million, or 10.6%. Liquidity continues to be impacted by record cumulative levels of consumer savings, government stimulus, and PPP loan related deposits. Key strategies continue to be expanding the low cost deposit base and re-pricing to reduce interest expense and buffer NIM compression during this low rate environment.
The Company's total stockholders' equity at September 30, 2021 increased $3.6 million or 3.1% from December 31, 2020 to $120.8 million. The Bank remains well capitalized with a Tier 1 Capital ratio of 12.33% at September 30, 2021 as compared to 11.69% at December 31, 2020. The Bank's leverage ratio was 9.22% at September 30, 2021 as compared to 8.56% at December 31, 2020.
On July 14, 2021, the Company completed the issuance of $30.0 million in aggregate principal amount of subordinated notes due in 2031 in a private placement transaction. The subordinated notes initially bear interest at a fixed rate of 3.5% for five years and at the three month SOFR plus 286 basis points, resetting quarterly, thereafter. The notes were structured to qualify as Tier 2 capital for regulatory purposes, and the proceeds will be used for general corporate purposes.
NPAs totaled $1.4 million as of September 30, 2021 compared to $2.4 million as of June 30, 2021 and down from $5.7 million at September 30, 2020. NPAs as a percentage of total assets decreased to 0.10%, compared to 0.19% at June 30, 2021 and 0.45% at September 30, 2020. Non-accrual loans decreased to $424 thousand from $1.4 million at June 30, 2021 and $4.6 million at September 30, 2020. Loans past due 90 days or more and still accruing interest decreased $56 thousand to $937 thousand at September 30, 2021 from $993 thousand at June 30, 2021 and increased slightly from $877 thousand at September 30, 2020. Of the loans past due 90 days or more at September 30, 2021, approximately $667 thousand were government-guaranteed student loans.
The Company recognized a provision for loan losses of $360 thousand during third quarter of 2021. The company did not recognize a provision for loan losses during the second quarter of 2021 and recognized $300 thousand during the third quarter of 2020. The higher provision expense during the third quarter of 2021 was driven primarily by the downgrade of one commercial relationship. The allowance for loan and lease losses (ALLL) was $9.7 million at September 30, 2021 compared to $9.5 million at June 30, 2021 and $9.9 million at September 30, 2020. The ALLL as a percentage of loans held for investment was 1.15% at September 30, 2021 compared to 1.14% at June 30, 2021 and September 30, 2020. Excluding PPP loans, the ALLL as a percentage of loans held for investment was 1.20% at September 30, 2021, 1.23% at June 30, 2021, and 1.29% at September 30, 2020. The slight increase in the ALLL as a percentage of loans held for investment at September 30, 2021 compared to the linked quarter was primarily attributable to an increase in loans held for investment, excluding PPP loans, and the downgrade of one commercial relationship, partially offset by slight improvement in qualitative factors related to the COVID-19 pandemic. Quarterly annualized net charge offs as a percentage of average loans outstanding was 0.07% for the third quarter of 2021, compared to 0.09% for the second quarter of 2021 and 0.04% for the third quarter of 2020. As of September 30, 2021, asset quality remains very strong with no significant changes in the overall credit quality of the loan portfolio. Management will continue to monitor both macro and micro challenges to the economic recovery, including the impacts of new COVID-19 variants, related government stimulus efforts, supply chain disruption, and employment levels, which may be delaying signs of credit deterioration. If there are further challenges to the economic recovery, elevated levels of risk within the loan portfolio may require additional increases in the allowance for loan losses. Low levels of past dues, NPAs, and year-over-year quantitative historical loss rates continue to demonstrate improvement.
The Company has made loan modifications under the Coronavirus Aid, Relief and Economic Security Act (CARES Act), enacted on March 27, 2020, and subsequently amended by the Consolidated Appropriations Act 2021, which provided that certain loan modifications that were (1) related to COVID-19 and (2) for loans that were not more than 30 days past due as of December 31, 2019 are not required to be designated as TDRs. At September 30, 2021, the Company had no such loan modifications, down from $54 thousand as of June 30, 2021 and $7.1 million as of March 31, 2021.
Net Interest Income
Net interest income was $9.9 million for the third quarter of 2021, an increase of $770 thousand, or 8.5% from the prior quarter, primarily driven by accelerated recognition of deferred fees and costs related to PPP forgiveness at a higher volume during the third quarter of 2021, prepayment penalties collected on one commercial relationship, and an increase in securities income, partially offset by subordinated debt interest expense. Compared to the third quarter of 2020, net interest income improved by $1.4 million, or 16.6%. The movement from the prior-year comparative quarter was due to significantly higher balances in average earning assets and accelerated recognition of deferred fees and costs related to PPP forgiveness partially offset by higher average interest bearing liabilities at lower average rates. For the nine months ended September 30, 2021, net interest income was $29.1 million compared to $25.4 million for the prior year comparative period, an increase of $3.8 million, or 14.9%.
The Net Interest Margin (NIM) for the third quarter of 2021 was 3.24%, an increase from 3.10% for the linked quarter and 2.91% for the prior year quarter. On a fully tax-equivalent basis (FTE), NIM increased to 3.26% for the third quarter of 2021, up from 3.12% for the second quarter of 2021 and 2.92% for the third quarter of 2020. Average loan yields were higher for the third quarter of 2021 compared to the same period of 2020 due to accelerated recognition of deferred fees and costs related to PPP forgiveness and the collection of prepayment penalties. Loan fees and costs related to PPP loans are deferred at time of loan origination, are amortized into interest income over the remaining term of the loans and are accelerated upon forgiveness or repayment of the PPP loans. Net PPP fees of $713 thousand were recognized in the third quarter of 2021 compared to $449 thousand in the linked quarter. As of September 30, 2021, unrecognized net PPP fees were $1.1 million. While high levels of liquidity invested at lower yielding short-term levels in the low interest rate environment also continue to impact the NIM, the Company believes the balance sheet is well positioned for an eventual rise in interest rates. For more information about these FTE financial measures, please see "Non-GAAP- Financial Measures" and "Reconciliation of Certain Non-GAAP Financial Measures," below.
Total noninterest income for the third quarter of 2021 was $3.6 million, an increase of $68 thousand from the previous quarter and a decrease of $51 thousand from the third quarter of 2020. The increase in noninterest income during the third quarter of 2021, compared to the linked quarter, was driven by increases in service charges on deposit accounts and mortgage banking income related to pipeline volume fluctuations which were partially offset by decreases in fiduciary and asset management fees and other service charges, commissions and fees. Although fiduciary and asset management fees and service charges on deposit accounts other service charges increased compared to the prior year quarter, these increases were offset by lower mortgage banking income, resulting in a slight decline in noninterest income for the third quarter of 2021 when compared to the prior year quarter. Noninterest income for the nine months ended September 30, 2021 was $11.3 million, an increase of $385 thousand or 3.5%, compared to $10.9 million for the nine months ended September 30, 2020.
Noninterest expense totaled $10.5 million and $10.9 million for the second and third quarters of 2021, respectively, compared to $10.7 million for the third quarter of 2020. The increase over the prior year quarter is primarily driven by (i) increased data processing expense related to implementation and transition of bank-wide technology enhancements; (ii) increased professional services; and (iii) other operating expenses primarily related to FDIC assessments and bank franchise tax. Salary and benefit expense decreased compared to the prior year quarter primarily due to decreased salary expense related to the 2020 early retirement incentive plan and decreased overtime levels. Noninterest expense increased $2.1 million, or 7.1%, to $32.0 million for the nine months ended September 30, 2021 compared to $29.9 million for the prior year comparative period. The drivers of the year over year increase are higher salary and employee benefits related to lower levels of PPP deferred cost recognition and increased data processing expense related to bank-wide technology enhancements.
As part of the Company's roadmap for implementing bank-wide technology and efficiency initiatives, during 2021, the Company has fully implemented a new loan origination system and a new online appointment scheduling solution as well as completing an ATM upgrade project. During the fourth quarter, the Company expects to finalize implementation of a new deposit origination platform and a new online account opening solution. The Company is also on track to complete upgrades to critical infrastructure software related to imaging and to implement a new data analytics solution and teller system during the fourth quarter of 2021. The Company continues to focus on balance sheet repositioning through disposition of under-utilized real estate and branch optimization, as well as digital initiatives that complement this repositioning. The Company has also benefited from the early retirement transitions to redeploy resources in highly skilled and experienced relationship officers as well as officers with expertise in creating efficiencies through improvements in operations and technology.
Non-GAAP Financial Measures
In reporting the results of the quarter ended September 30, 2021, the Company has provided supplemental financial measures on a tax-equivalent or an adjusted basis. These non-GAAP financial measures are a supplement to GAAP, which is used to prepare the Company's financial statements, and should not be considered in isolation or as a substitute for comparable measures calculated in accordance with GAAP. In addition, the Company's non-GAAP financial measures may not be comparable to non-GAAP financial measures of other companies. The Company uses the non-GAAP financial measures discussed herein in its analysis of the Company's performance. The Company's management believes that these non-GAAP financial measures provide additional understanding of ongoing operations and enhance comparability of results of operations with prior periods presented without the impact of items or events that may obscure trends in the Company's underlying performance. A reconciliation of the non-GAAP financial measures used the Company to evaluate and measure the Company's performance to the most directly comparable GAAP financial measures is presented below.
Safe Harbor Statement Regarding Forward-Looking Statements - Statements in this press release, including without limitation, statements made in Mr. Shuford's quotations, which use language such as "believes," "expects," "plans," "may," "will," "should," "projects," "contemplates," "anticipates," "forecasts," "intends" and similar expressions, may constitute forward-looking statements. These forward-looking statements are based on the beliefs of Old Point's management, as well as estimates and assumptions made by, and information currently available to, management. These statements are inherently uncertain, and there can be no assurance that the underlying estimates or assumptions will prove to be accurate. Actual results could differ materially from historical results or those anticipated by such statements. Forward-looking statements in this release may include, without limitation: statements regarding strategic business initiatives, including digital and technological strategies and balance sheet repositioning and branch initiatives, and the future financial impact of those initiatives; future financial performance; future financial conditions and loan demand; performance of the investment and loan portfolios; impacts of the COVID-19 pandemic and the ability of the Company to manage those impacts; revenue generation, efficiency initiatives and expense controls; deposit growth; levels and sources of liquidity; future levels of charge-offs or net recoveries; and levels of or changes in interest rates.
Factors that could have a material adverse effect on the operations and future prospects of Old Point include, but are not limited to, changes in or the effects of: interest rates and yields; general economic and business conditions, including unemployment levels and slowdowns in economic growth, including impacts of the COVID-19 pandemic; steps the Company takes in response to the pandemic, the severity and duration of the pandemic including the impact of the COVID-19 variants, the speed and efficacy of vaccine and treatment developments, the pace of recovery when the pandemic subsides and the heightened impact it has on many of the risks described herein; the effects of the COVID-19 pandemic on, among other things, the Company's operations, liquidity, and credit quality and potential claims, damages and fines related to litigation or government actions, including litigation or actions arising from the Company's participation in the administration of programs related to the COVID-19 pandemic (including, among other things, the Coronavirus Aid, Relief, and Economic Security, or CARES, Act, as amended by the Consolidated Appropriations Act, 2021); demand for loan products; future levels of government defense spending, particularly in the Company's service area; uncertainty over future federal spending or budget priorities of the current administration, particularly in connection with the Department of Defense, on the Company's service area; the impact of changes in the political landscape and related policy changes, including monetary, regulatory, and trade policies; monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board and any changes associated with the current administration; the quality or composition of the loan or securities portfolios; changes in the volume and mix of interest-earning assets and interest-bearing liabilities; the effects of management's investment strategy and strategy to manage the net interest margin; the U.S. Government's guarantee of repayment of student or small business loans purchased by Old Point; the level of net charge-offs on loans; deposit flows; competition; demand for financial services in Old Point's market area; technology; implementation of new technologies; the Company's ability to develop and maintain secure and reliable electronic systems; any interruption or breach of security in the Company's information systems or those of the Company's third party vendors or other service providers; cyber threats, attacks and events; reliance on third parties for key services; the use of inaccurate assumptions in management's modeling systems; the real estate market; accounting principles, policies and guidelines; changes in management; and other factors detailed in Old Point's publicly filed documents, including its Annual Report on Form 10-K for the year ended December 31, 2020. 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, which speak only as of date of the release.
Old Point Financial Corporation (Nasdaq: OPOF) is the parent company of Old Point National Bank and Old Point Trust & Financial Services, N.A., which serve the Hampton Roads and Richmond regions of Virginia as well as operate a mortgage loan production office in Charlotte, North Carolina. Old Point National Bank is a locally owned and managed community bank which offers a wide range of financial services from checking, insurance, and mortgage products to comprehensive commercial lending and banking products and services. Old Point Trust is the largest wealth management services provider headquartered in Hampton Roads, Virginia, offering local asset management by experienced professionals. Additional information about the company is available at oldpoint.com.
For more information, contact Laura Wright, Vice President/Marketing Director, at [email protected] or (757) 728-1743.