Old Point Reports Fourth Quarter and Full Year 2018 Results

HAMPTON, Va., Jan. 31, 2019 /PRNewswire/ -- Old Point Financial Corporation (the Company or Old Point) (NASDAQ: OPOF) reported net income of $1.4 million and earnings per share of $0.27 for the quarter ended December 31, 2018, as compared to a net loss of $2.9 million or a $0.58 loss per share for the fourth quarter of 2017. Net operating earnings (non-GAAP) for the fourth quarter of 2018 were also $1.4 million or $0.27 per share, which compares to $781 thousand, or $0.16 per share for the fourth quarter of 2017.

For the year ended December 31, 2018, net income was $4.9 million, or $0.96 per share, as compared to a net loss of $29 thousand or a $0.01 loss per share in 2017. Net operating earnings (non-GAAP) for the twelve months ended December 31, 2018 were $5.7 million, or $1.10 per share, as compared to $3.3 million or $0.66 per share for the same period in 2017.

Robert Shuford, Jr., President and CEO of Old Point National Bank said, "The fourth quarter represented a solid continuation to a much improved financial performance in 2018 as compared to 2017, with notable improvements in most performance ratios after adjusting for merger-related costs and non-operating events. While we have yet to achieve a level of performance that we expect of ourselves, we certainly made substantive progress to the achievement of those goals in 2018 and enter 2019 with excitement and momentum. We expect to continue our path to improved earnings performance, with the overriding goal of serving our communities, customers and employees while creating shareholder value."

Mr. Shuford added, "We made substantial progress in 2018 in resolving several problem credit issues to strengthen our balance sheet and expect the results of this progress to be evident in 2019. We successfully consummated and integrated our first acquisition in 2018, and we expect to roll out our new loan origination platform in late first quarter of 2019.  Most recently, we executed contracts to migrate to a new online banking platform and upgrade our core processing solution. We anticipate that these initiatives will improve the customer experience, create efficiencies and reduce operating expenses."

Highlights of the quarter are as follows:

• Return on average assets (ROA) was 0.54% compared to 0.62% in the prior quarter and -1.19% in the fourth quarter of 2017. Net operating ROA (non-GAAP) was 0.54% compared to 0.64% and 0.32% in the third quarter of 2018 and the fourth quarter of 2017, respectively.                                      
• Return on average equity (ROE) was 5.50% compared to 6.36% in the prior quarter and -11.85% in the fourth quarter of 2017. Net operating ROE (non-GAAP) was 5.55% compared to 6.55% and 3.20% in the third quarter of 2018 and the fourth quarter of 2017, respectively.                                      
• Net interest income improved to $8.6 million compared to $8.5 million in the prior quarter and $7.7 million in the fourth quarter of 2017.                              
• Net interest margin (on a fully tax-equivalent basis) improved to 3.69% from 3.67% in the prior quarter and 3.57% in the fourth quarter of 2017.                                           
• Non-performing assets (NPAs) totaled $14.7 million as of December 31, 2018, down from $17.5 million at September 30, 2018 and down from $16.1 million at December 31, 2017. NPAs as a percentage of total assets improved to 1.42% at December 31, 2018 which compares to 1.70% at September 30, 2018 and 1.64% at December 31, 2017.                                           
• The efficiency ratio improved to 78.51% compared to 78.69% in the third quarter of 2018 and 81.48% in the fourth quarter of 2017.

Net Interest Income

Net interest income for the fourth quarter of 2018 was $8.6 million, an increase of $87 thousand, or 1.0%, from the prior quarter and an increase of $937 thousand, or 12.2%, from the fourth quarter of 2017. The quarter-over-quarter growth in net interest income was principally the result of higher yields on earnings assets which was partially offset by higher funding costs. The year-over-year growth was positively impacted by higher average earning asset balances as well as higher yields. The tax-equivalent net interest margin for the quarter was 3.69%, up from 3.67% in the prior quarter and 3.57% in the same period a year ago. The margin improvement was primarily due to increases in average loan yields which outweighed higher rates on interest-bearing deposits and borrowings.

Asset Quality

Non-performing assets (NPAs) totaled $14.7 million as of December 31, 2018, down from $17.5 million at September 30, 2018 and $16.1 million at December 31, 2017. NPAs as a percentage of total assets were 1.42%, which compares to 1.70% at September 30, 2018 and 1.64% at December 31, 2017. Non-accrual loans decreased to $12.1 million from $13.0 million at September 30, 2018 and $12.9 million at December 31, 2017. Loans past due 90 days or more and still accruing interest decreased $1.8 million to $2.5 million from $4.3 million at September 30, 2018 and decreased by $685 thousand compared to $3.2 million at December 31, 2017. Of the loans past due 90 days or more at December 31, 2018, approximately $1.7   million were government-guaranteed student and small business loans.

The provision for loan losses was $1.0 million for the fourth quarter, as compared to $749 thousand for the third quarter and $1.2 million for the fourth quarter of 2017. The allowance for loan and lease losses (ALLL) was $10.1 million at December 31, 2018 compared to $10.2 million at September 30, 2018 and $9.4 million at December 31, 2017. The ALLL as a percentage of loans held for investment was 1.31% at December 31, 2018, unchanged from September 30, 2018, and up slightly from 1.28% at December 31, 2017. Annualized net charge offs as a percentage of average loans outstanding was 0.58% for the fourth quarter, which compares to 0.20% in the preceding quarter and 0.41% in the fourth quarter of 2017. The Company recorded one large charge-off during the fourth quarter of 2018 for $573 thousand based on a negotiated note sale, which is anticipated to close in the first half of 2019.

Noninterest Income

Total noninterest income for the quarter was $3.3 million, which was essentially unchanged from the previous quarter and an increase of $59 thousand, or 1.8% from the fourth quarter of 2017. Increases in service charges on deposit accounts and other services charges and commissions were offset by declines in fiduciary and management fees and mortgage banking revenues.  For both the twelve months ended December 31, 2018 and 2017, total noninterest income was $13.3 million. Excluding the impact of a nonrecurring gain associated with Old Point Mortgage in 2017, adjusted 2018 noninterest income (non-GAAP) increased $514 thousand or 4.0% over the same period in 2017 with similar comparisons to fourth quarter variances noted.

Noninterest Expense

Noninterest expense totaled $9.4 million for the fourth quarter of 2018, essentially unchanged from the third quarter and a decrease of $3.2 million or 25.6% from the fourth quarter of 2017. Adjusting for the $3.4 million nonrecurring charge incurred in the fourth quarter of 2017 associated with the Company's termination of its pension plan, adjusted noninterest expense (non-GAAP) increased $106 thousand or 1.1% comparing fourth quarter of 2018 to the same period in 2017. For the linked quarter, decreases in salary and employee benefits, occupancy and equipment and employee professional development costs offset increases in professional services, data processing and customer development costs.

For the twelve months ended December 31, 2018, total noninterest expense was $38.5 million, a decrease of $695 thousand or 1.8% as compared to $39.2 million for same period in 2017. Excluding the impact of merger expenses of $655 thousand and $241 thousand for 2018 and 2017, as well as the aforementioned pension termination charge in 2017, adjusted noninterest expense (non-GAAP) increased $2.2 million or 6.3% in 2018 over 2017. This increase was mainly attributable to increased salaries and employee benefits in part associated with increased staffing related to acquisition growth, FDIC insurance costs, data processing costs and professional services costs related to some of the Company's process improvement initiatives.

Balance Sheet Review

Total assets as of December 31, 2018 were $1.0 billion, an increase of $56.4 million, or 5.7%, from December 31, 2017. Net loans held for investment increased $34.8 million, or 4.8%, from December 31, 2017 to $763.9 million. The increase in net loans and total assets was largely the result of the Citizens National Bank (Citizens) acquisition, which was completed on April 1, 2018.

Total deposits as of December 31, 2018 increased $59.6 million, or 7.6%, to $843.1 million from December 31, 2017. Noninterest-bearing deposits increased $20.5 million, or 9.1%, savings deposits increased $22.9 million, or 6.6%, and time deposits increased $16.1 million, or 7.6%. The increase in deposits was due in large part to the Citizens acquisition.

The Company remains well capitalized. The Company's Tier 1 Capital ratio was 11.57% at December 31, 2018 as compared to 11.18% at December 31, 2017. The Company's leverage ratio was 9.88% at December 31, 2018 as compared to 9.98% at December 31, 2017. Total stockholders' equity at December 31, 2018 increased $5.6 million or 5.8% from December 31, 2017 to $102.0 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, net operating ROA, net operating ROE, and operating efficiency ratio.  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 Cut and Jobs 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, changes in: interest rates and yields; general economic and business conditions, including unemployment levels and the impact of any prolonged federal government shutdown; 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; 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; 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 Jeff Farrar, Chief Financial Officer & Senior Vice President/Finance of Old Point Financial Corporation at 757-728-1248, or Laura Wright, Vice President/Marketing Director, Old Point National Bank at 757-728-1743.

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SOURCE Old Point Financial Corporation