Old Point Releases Fourth Quarter and Full Year 2021 Results

HAMPTON, Va., Jan. 27, 2022 /PRNewswire/ -- Old Point Financial Corporation (the Company or Old Point) (NASDAQ: OPOF) reported net income of $1.7 million and earnings per diluted common share of $0.32 for the quarter ended December 31, 2021, as compared to net income of $545 thousand and earnings per diluted common share of $0.10 for the fourth quarter of 2020. Net income for the years ended December 31, 2021 and 2020 was $8.4 million, or $1.61 earnings per diluted common share, and $5.4 million, or $1.03 earnings per diluted common share, respectively.

Robert Shuford, Jr., Chairman, President and CEO of the Company and Old Point National Bank (the Bank) said, "Old Point recognized strong performance in top line revenue generation while maintaining a disciplined focus on credit quality, liquidity, and capital levels, delivering well-founded achievement in an extraordinary year. Over the last four years, we executed on our forward-looking strategies of investing in and streamlining human capital, investing in technology, and building a growth ready platform.  During this period, total assets grew over 28% with virtually all deployed as earning assets. We accomplished this growth by attracting a number of highly skilled bankers in production, operations, and technology while tapering our overall staffing levels down over 6%. With our outstanding and dedicated team and our knowledge and commitment to community banking, we are well positioned to continue our focus on growth, efficiency, and technology and are looking at 2022 with great optimism."

Highlights of the quarter are as follows:

• Total assets were $1.3 billion at December 31, 2021, growing $111.7 million or 9.1% from December 31, 2020.
• Net loans grew $6.9 million from December 31, 2020. PPP loans outstanding at December 31, 2021 were $19.0 million compared to $86.0 million at December 31, 2020. Net loans held for investment, excluding PPP (non-GAAP), grew $74.2 million, or 9.9%, from December 31, 2020 to December 31, 2021.
• Deposits grew $109.9 million to $1.2 billion at December 31, 2021 from December 31, 2020.
• Non-performing assets (NPAs) decreased to $1.5 million at December 31, 2021 compared to $2.0 million at December 31, 2020. NPAs as a percentage of total assets was 0.11% at December 31, 2021, which compared to 0.16% at December 31, 2020.
• Average earning assets for the year ended December 31, 2021 grew $104.5 million, or 9.6%, to $1.2 billion compared to $1.1 billion for the year ended December 31, 2020.
• Book value per share at December 31, 2021 increased 3.1% over December 31, 2020. Tangible book value per share (non-GAAP) increased 3.2% over the same period.
• Net interest income was $9.7 million for the fourth quarter of 2021, decreasing from $9.9 million for the prior quarter and increasing from $9.4 million for the fourth quarter of 2020.
• Net income improved to $1.7 million for the fourth quarter of 2021 from $545 thousand for the 2020 comparative quarter but decreased $230 thousand from the third quarter of 2021.

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.

Balance Sheet and Asset Quality
Total assets of $1.3 billion as of December 31, 2021 increased by $111.7 million from December 31, 2020. Net loans held for investment increased $6.9 million, or 0.8% from December 31, 2020 to $833.7 million at December 31, 2021. The change in net loans held for investment was primarily affected by a decline of $67.0 million in the PPP loan segment due to forgiveness of $115.3 million of PPP loans, partially offset by new PPP originations of $48.3 million.  Loans held for investment, excluding PPP, grew 9.9%, or $74.2 million, driven by loan growth in the following segments: commercial real estate of $66.6 million, construction, land development, and other land loans of $14.9 million, and automobile of $4.7 million. This segmented growth was partially offset by decreases in commercial and industrial and multi-family residential real estate. Securities available for sale, at fair value, increased $47.9 million from December 31, 2020 to $234.3 million at December 31, 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 December 31, 2021 increased $109.9 million, or 10.3%, from December 31, 2020. Noninterest-bearing deposits increased $60.9 million, or 16.9%, savings deposits increased $73.5 million, or 14.3%, and time deposits decreased $24.5 million, or 12.7%. Liquidity continues to be impacted by record cumulative levels of consumer savings, government stimulus, and PPP loan related deposits. Expanding the low-cost deposit base and re-pricing to reduce interest expense to buffer NIM compression during the low rate environment were key strategies in 2021.

The Company's total stockholders' equity at December 31, 2021 increased $3.7 million or 3.1% from December 31, 2020 to $120.8 million. The Bank remains well capitalized with a Tier 1 Capital ratio of 12.57% at December 31, 2021 as compared to 11.69% at December 31, 2020. The Bank's leverage ratio was 9.09% at December 31, 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 2031 Notes). 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 $1.5 million as of December 31, 2021 compared to $1.4 million as of September 30, 2021 and down from $2.0 million at December 31, 2020. NPAs as a percentage of total assets was 0.11% at December 31, 2021, compared to 0.10% at September 30, 2021 and 0.16% at December 31, 2020. Non-accrual loans were $478 thousand at December 31, 2021, a slight increase from $424 thousand at September 30, 2021 and a decrease from $1.2 million at December 31, 2020. Loans past due 90 days or more and still accruing interest increased $88 thousand to $1.0 million at December 31, 2021 from $937 thousand at September 30, 2021 and increased $281 thousand from $744 thousand at December 31, 2020. Of the loans past due 90 days or more at December 31, 2021, approximately $711 thousand were government-guaranteed small business or student loans.

The Company recognized a provision for loan losses of $284 thousand during fourth quarter of 2021 compared to $360 thousand during the third quarter of 2021 and $100 thousand during the fourth quarter of 2020. The allowance for loan and lease losses (ALLL) was $9.9 million at December 31, 2021 compared to $9.7 million at September 30, 2021 and $9.5 million at December 31, 2020. The ALLL as a percentage of loans held for investment was 1.17% at December 31, 2021 compared to 1.15% at September 30, 2021 and 1.14% at December 31, 2020. Excluding PPP loans, the ALLL as a percentage of loans held for investment was 1.20% at December 31, 2021 and September 30, 2021, and 1.27% at December 31, 2020. The increase in the ALLL as a percentage of loans held for investment at December 31, 2021 compared to the linked quarter was primarily attributable to an increase in loans held for investment, excluding PPP loans, the downgrade of one commercial relationship, and qualitative factor adjustments for volume trends, partially offset by slight improvement in historical qualitative loss rates. Quarterly annualized net charge offs as a percentage of average loans outstanding was 0.05% for the fourth quarter of 2021, compared to 0.07% for the third quarter of 2021 and 0.22% for the fourth quarter of 2020. As of December 31, 2021, asset quality remains very strong with no significant changes in the overall credit quality of the loan portfolio.  Management will continue to monitor economic recovery challenges at macro and micro levels, including levels of inflation, the impacts of new COVID-19 variants, expansion and contraction of pandemic-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 December 31, 2021, the Company had no such loan modifications, down from $7.4 million as of December 31, 2020.   

Net Interest Income
Net interest income was $9.7 million for the fourth quarter of 2021, a decrease of $220 thousand, or 2.2% from the prior quarter, primarily driven by accelerated recognition of deferred fees and costs related to PPP forgiveness at a lower volume during the fourth quarter of 2021 and prepayment penalties collected on one commercial relationship during the prior quarter. Compared to the fourth quarter of 2020, net interest income improved by $298 thousand, or 3.2%. 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 year ended December 31, 2021, net interest income was $38.8 million compared to $34.7 million for the prior year comparative period, an increase of $4.0 million, or 11.7%.

The Net Interest Margin (NIM) for the fourth quarter of 2021 was 3.07%, a decrease from 3.24% for the linked quarter and 3.16% for the prior year quarter. On a fully tax-equivalent basis (FTE), NIM was 3.09% for the fourth quarter of 2021, down from 3.26% for the third quarter of 2021 and 3.18% for the fourth quarter of 2020.  Average loan yields were higher for the fourth quarter of 2021 compared to the same period of 2020 due primarily to accelerated recognition of deferred fees and costs related to PPP forgiveness. 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 $227 thousand were recognized in the fourth quarter of 2021 compared to $713 thousand in the linked quarter and $506 thousand in the prior year quarter. As of December 31, 2021, unrecognized net PPP fees were $640 thousand. Subordinated debt interest expense related to the issuance of the 2031 Notes also impacted the NIM for the 2021 fourth quarter and full year periods. High levels of liquidity invested at lower yielding short-term levels in the low interest rate environment continue to impact the NIM, however, the Company believes the balance sheet is well positioned for a rising interest rate environment. For more information about these FTE financial measures, please see "Non-GAAP- Financial Measures" and "Reconciliation of Certain Non-GAAP Financial Measures," below.

Noninterest Income
Total noninterest income held steady at $3.6 million for both the third and fourth quarters of 2021 and decreased $198 thousand from the fourth quarter of 2020. Increases during the fourth quarter of 2021 in bank- owned life insurance income and fiduciary and asset management fees were offset by decreases in mortgage banking income related to pipeline volume fluctuations and other service charges, commissions and fees compared to the linked quarter.  Although fiduciary and asset management fees, service charges on deposit accounts, other service charges, commissions and fees, and bank-owned life insurance income increased compared to the prior year quarter, these increases were offset primarily by lower mortgage banking income, resulting in a decline in noninterest income for the fourth quarter of 2021 when compared to the prior year quarter. Noninterest income for the year ended December 31, 2021 was $14.9 million, an increase of $187 thousand or 1.3%, compared to $14.7 million for the year ended December 31, 2020. The year ended December 31, 2020 was positively impacted by sales of available for sale securities and fixed assets.

Noninterest Expense
Noninterest expense totaled $10.9 million and $11.1 million for the third and fourth quarters of 2021, respectively, compared to $12.6 million for the fourth quarter of 2020. The linked quarter increase of $200 thousand was related to increases in professional services and employee professional development and an impairment of certain low-income housing equity investments partially offset by decreases in salaries and employee benefits. The decrease over the prior year quarter is primarily driven by: (i) decreased salary and benefit expense; (ii) decreased ATM and other losses; and (iii) decreased losses recognized related to Federal Home Loan Bank (FHLB) prepayments and sale of loans.  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, lower commission expense, and decreased overtime levels. Noninterest expense increased $644 thousand, or 1.5%, to $43.1 million for the year ended December 31, 2021 compared to $42.5 million for the prior year comparative period.  The drivers of the year-over-year increase are increased data processing expense related to bank-wide technology enhancements, increased professional services, and increased other operating expenses partially offset by decreased ATM and other losses and losses related to FHLB prepayments.

During 2021, the Company fully executed and implemented multiple solutions as part of the ongoing roadmap for bank-wide technology and operating efficiency initiatives. Initiatives completed during 2021 include a new loan origination system, new online appointment scheduling system, bank-wide ATM upgrades, a new deposit origination platform, a new data analytics solution, and a new payments platform. Critical infrastructure software related to imaging, a new teller platform, and a new online account opening solution are expected to reach  completion in early first quarter 2022. These initiatives have driven period-over-period increases in data processing costs during the implementation and transition time frames as our operational structure pivoted from in-house to outsourced environments and shifted costs previously included in occupancy and equipment expense. Fully implementing, integrating, and leveraging these digital and technological strategies as solutions become fully implemented and integrated to gain operational efficiencies will remain one area of focus in 2022. The Company also continues to focus on balance sheet repositioning, exploring disposition opportunities of under-utilized real estate and branch optimization, as well as digital initiatives that complement this repositioning.

Non-GAAP Financial Measures
In reporting the results of the quarter ended December 31, 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 quotation, 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.

Information about Old Point Financial Corporation
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.

SOURCE Old Point Financial Corporation