Old Point Releases Second Quarter 2018 Results

HAMPTON, Va., July 27, 2018 /PRNewswire/ -- Old Point Financial Corporation (the Company or Old Point) (NASDAQ: OPOF) reported net income of $990 thousand and earnings per share of $0.19 for the second quarter ended June 30, 2018. Excluding the effect of $479 thousand in after tax merger costs, net operating earnings (non-GAAP) were $1.5 million, or $0.28 per share, for the second quarter of 2018.  The Company's second quarter of 2018 results include the financial results of Citizens National Bank (Citizens), which the Company acquired on April 1, 2018.

Net income for the six months ended June 30, 2018 was $1.9 million or $0.38 per share. Excluding the effect of $684 thousand in after tax merger costs, net operating earnings (non-GAAP) were $2.6 million, or $0.51 per share, for the six month period.

Robert Shuford, Jr., President and CEO of Old Point National Bank said, "This was a solid quarter for us as we continued to see revenue momentum and improvement in core profitability metrics, as compared to the prior quarter and same quarter prior year.  Net loan growth was muted by some large pay-downs, but new loan production and related pipelines are strong. Noninterest revenues were particularly strong in the second quarter across most of our lines of business. While operating expenses were somewhat elevated during the quarter, much of the increase was associated with nonrecurring expenses associated with the acquisition, which coupled with anticipated cost savings, should improve over the second half of the year. We have a number of initiatives ongoing to improve our efficiency and effectiveness, including the implementation of a new commercial loan origination platform scheduled for later this year. In addition, we are developing, with the help of advisors, a future state for all of our loan origination processes to maximize this investment. The Citizens acquisition has come together seamlessly and our new Old Point teammates are bringing much energy and enthusiasm."

Highlights of the quarter are as follows:

• Net interest income after provision for loan losses improved to $7.8 million, an increase of 7.4% over the previous quarter and 21.3% over the second quarter of 2017.

• Return on average assets (ROA) was 0.39% compared to 0.38% in the prior quarter and 0.50% in the second quarter of 2017. Net operating ROA (non-GAAP) was 0.57% compared to 0.46% and 0.34% in the first quarter of 2018 and the second quarter of 2017, respectively.

• Non-performing assets as a percentage of total assets improved to 1.59% from 1.66% at March 31, 2018; this ratio was 1.58% at June 30, 2017.

• Total assets increased to $1.0 billion, representing growth of $50.2 million, or 5.1%, from December 31, 2017 and $79.5 million, or 8.3%, from June 30, 2017, reflecting the acquisition of Citizens.

Net Interest Income

Net interest income for the second quarter of 2018 was $8.4 million, an increase of $681 thousand, or 8.8%, from the prior quarter and an increase of $1.0 million, or 14.0%, from the second quarter of 2017. The quarter-over-quarter and year-over-year increases in net interest income are attributable to higher average earning asset balances, partially offset by higher funding costs. The tax-equivalent net interest margin for the quarter was 3.65%, up from 3.48% in the prior quarter and 3.64% in the same period a year ago. The margin expansion was principally due to higher loan yields, which were enhanced in the second quarter of 2018 due in part from the higher yields and discount accretion on loans acquired through the merger with Citizens. The higher loan yields were partially offset by increased rates on interest-bearing deposits and borrowings.

Asset Quality

Non-performing assets (NPAs) totaled $16.4 million as of June 30, 2018, down from $16.5 million at March 31, 2018 and up from $14.9 million at June 30, 2017. NPAs as a percentage of total assets were 1.59%, which compares to 1.66% at March 31, 2018 and 1.56% at June 30, 2017. Non-accrual loans decreased to $13.9 million from $14.1 million at March 31, 2018 but increased from $11.6 million at June 30, 2017. Loans past due 90 days or more and still accruing interest increased to $2.3 million from $2.2 million at March 31, 2018 and decreased from $3.4 million at June 30, 2017. Of the loans past due 90 days or more at June 30, 2018, approximately $1.9 million were government-guaranteed student loans. Other real estate owned totaled $251 thousand at June 30, 2018 compared to $203 thousand at March 31, 2018.  The Company had no other real estate owned at June 30, 2017.

The allowance for loan and lease losses (ALLL) was $9.9 million at June 30, 2018 compared to $9.7 million at March 31, 2018 and $8.7 million at June 30, 2017. The ALLL as a percentage of loans held for investment was 1.28% at June 30, 2018 compared to 1.33% at March 31, 2018 and 1.28% at June 30, 2017. The linked quarter decrease is primarily attributable to the acquisition of Citizens, as the purchased loan portfolio of $43.5 million is marked to fair value and therefore does not carryover any previously established allowance for loan losses. Net loans charged-off during the quarter totaled $468 thousand, which compares to net charge-offs of $242 thousand and $813 thousand in the preceding quarter and second quarter of 2017, respectively. On an annualized basis, net charge-offs as a percentage of average loans were 0.24% for the second quarter of 2018 compared to 0.13% in the first quarter and 0.49% in the second quarter of 2017.

Noninterest Income

Total noninterest income for the quarter was $3.7 million which represents an increase of $389 thousand, or 11.6%, from the previous quarter and a decline of $347 thousand, or 8.5% from the second quarter of 2017. The linked quarter increase resulted from higher deposit and other service charges and mortgage banking income, which was partially offset by lower fiduciary and asset management fees. The decrease in noninterest income relative to the year ago period was largely due to the recognition of a $550 thousand non-recurring gain associated with the acquisition of Old Point Mortgage in the second quarter of 2017.

Noninterest Expense

Noninterest expense totaled $10.4 million for the second quarter of 2018. This represents an increase of $812 thousand, or 8.4%, from the first quarter of 2018 and an increase of $1.2 million, or 12.6%, from the second quarter of 2017. Both the linked quarter and year ago quarter increases were mostly due to higher salaries and employee benefits associated with normal market driven adjustments, but also included the addition of salaries and related severance payments associated with the acquisitions of Citizens and Old Point Mortgage, non-recurring merger expenses, and losses on other real estate owned.

Balance Sheet Review

Total assets as of June 30, 2018 were $1.0 billion, an increase of $50.2 million, or 5.1%, from December 31, 2017. Net loans held for investment increased $37.9 million, or 5.2%, from December 31, 2017 to $767.0 million. The growth in net loans and total assets was largely the result of the Citizens acquisition.

On April 1, 2018 the Company completed its acquisition of Citizens. Below is a summary of the transaction and related impact on the Company's balance sheet.

• The fair value of assets acquired equaled $50.4 million, and the fair value of liabilities assumed equaled $44.3 million.
• Loans held for investment acquired totaled $43.5 million with a fair value of $42.8 million.
• Total deposits assumed totaled $43.8 million with a fair value of $44.0 million.
• Total goodwill arising from the transaction equaled $1 million.
• Core deposit intangibles acquired totaled $440 thousand.

Total liabilities increased $47.4 million, or 5.4%, from December 31, 2017. Total deposits increased $56.7 million, or 7.2%, to $840.3 million from December 31, 2017. Noninterest-bearing deposits increased $19.4 million, or 8.6%, savings deposits increased $15.4 million, or 4.5%, and time deposits increased $22.0 million, or 10.3%. Overnight repurchase agreements increased $5.4 million, or 25.9%, and Federal Home Loan Bank advances decreased by $7.5 million, or 11.1%, from December 31, 2017. Total stockholders' equity increased 2.9% from December 31, 2017 to $99.2 million.

Non-GAAP Financial Measures – In addition to the Company's results presented in accordance with GAAP, this release includes certain non-GAAP financial measures including net operating earnings, net operating earnings per share, and net operating ROA.  A schedule reconciling these non-GAAP financial measures is provided at the end of this press release.  The Company uses these non-GAAP financial measures in its internal analysis of financial and operating performance and the Company's management believes that they provide greater transparency regarding management's view of the Company's performance.  These non-GAAP financial measures should be read in conjunction with, and not as a substitute for, the Company's GAAP results.  In addition, because not all companies use identical calculations, the Company's presentation of its non-GAAP financial measures may not be comparable to other similarly titled measures of other companies.

Safe Harbor Statement Regarding Forward-Looking Statements - Statements in this press release which use language such as "believes," "expects," "plans," "may," "will," "should," "projects," "contemplates," "anticipates," "forecasts," "intends" and similar expressions, identify 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 future financial performance; future impacts of the Tax Act on the Company's operations; performance of the investment and loan portfolios, including performance of the consumer auto loan portfolio and the purchased student loan portfolio; the effects of diversifying the loan portfolio; strategic business initiatives; management's efforts to reposition the balance sheet; deposit growth; levels and sources of liquidity; use of proceeds from the sale of securities; future levels of charge-offs or net recoveries; the impact of increases in NPAs on future earnings; write-downs and expected sales of other real estate owned; and 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 the possibility that any of the anticipated benefits of the acquisition of Citizens will not be realized or will not be realized within the expected time period. Other 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: interest rates and yields; general economic and business conditions, including unemployment levels; demand for loan products; the legislative/regulatory climate; 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 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; 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; 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, 2017. 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 ("OPOF" - Nasdaq) is the parent company of The Old Point National Bank of Phoebus, a locally owned and managed community bank serving all of Hampton Roads and Old Point Trust & Financial Services, N.A., a Hampton Roads wealth management services provider. Web: www.oldpoint.com. For more information, contact Jeffrey Farrar, Chief Financial Officer & Senior Vice President/Finance of Old Point Financial Corporation at 757-728-1248, or Erin Black, Senior Vice President/Marketing Director, Old Point National Bank at 757-251-2792.

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SOURCE Old Point Financial Corporation