Business Overview A Legacy of Community Banking
Old Point Financial Corporation (OPOF) is a diversified financial services holding company that has served the Hampton Roads and Richmond regions of Virginia for over a century. With a strong focus on community banking and wealth management, Old Point has weathered economic cycles and industry disruptions by maintaining a disciplined approach to risk management and operational efficiency.
Headquartered in Hampton, Virginia, Old Point Financial Corporation was founded in 1922 as The Old Point National Bank of Phoebus. The company's origins in the Phoebus neighborhood of Hampton reflect its deep-rooted connection to the local community. Over the past century, Old Point has grown to become a leading provider of banking, mortgage, and wealth management services in its local markets.
In the 1990s, Old Point Financial Corporation was formed as the bank holding company for Old Point National Bank, allowing for diversification of offerings and better alignment with evolving customer needs. A significant milestone in the company's growth came in 2000 with the acquisition of Old Point Trust & Financial Services, N.A., which expanded its wealth management capabilities.
The company successfully navigated the challenges posed by the 2008 financial crisis, demonstrating resilience through strong community ties and prudent risk management practices. In the 2010s, Old Point made strategic investments in technology and digital banking solutions to enhance its product and service offerings, maintaining its position as a respected community bank despite increasing competition.
Today, Old Point operates through its wholly-owned subsidiaries, The Old Point National Bank of Phoebus and Old Point Trust & Financial Services, N.A. The bank's branch network and team of experienced professionals offer a comprehensive suite of financial solutions to individuals, families, and businesses in the Hampton Roads and Richmond regions.
Throughout its nearly 100-year history, Old Point Financial Corporation has remained true to its founding principles of providing personalized service, supporting local communities, and delivering value to shareholders. This commitment to stability, integrity, and prudent management has been a key driver of Old Point's longevity and success, enabling it to navigate various economic cycles and emerge as a trusted financial institution in its markets.
Financial Strength and Resilience
Old Point's financial performance has been characterized by consistent profitability and a strong balance sheet. As of the most recent fiscal year ended December 31, 2023, the company reported net income of $7.73 million on total revenue of $61.85 million. For the third quarter of 2024, the company reported net income of $2.38 million on revenue of $18.52 million, representing a 7.70% year-over-year increase in revenue. This growth was primarily driven by higher average earning asset balances at higher average yields, partially offset by higher average rates on interest-bearing liabilities.
The company's net interest margin, a key measure of profitability for a community bank, was 3.54% for the nine months ended September 30, 2024, compared to 3.67% for the same period in 2023. This slight decline was attributable to the rising interest rate environment, which has presented challenges for banks nationwide in maintaining net interest margins. However, Old Point has been able to partially offset the impact of higher funding costs through its disciplined approach to asset-liability management and pricing strategies.
Old Point's balance sheet remains well-capitalized, with a common equity Tier 1 capital ratio of 12.76% and a total risk-based capital ratio of 13.80% as of September 30, 2024. These ratios comfortably exceed the regulatory minimums for well-capitalized institutions, providing the company with a strong foundation to support future growth and withstand potential economic headwinds.
The company's credit quality metrics have also remained stable, with nonperforming assets representing just 0.18% of total assets as of September 30, 2024, down slightly from 0.19% a year earlier. Old Point's allowance for credit losses on loans totaled $11.7 million, or 1.14% of total loans, at the end of the third quarter of 2024, reflecting the company's prudent approach to risk management.
Diversified Revenue Streams and Strategic Initiatives
Old Point operates through three principal business segments: the Bank, Wealth, and the Parent. The Bank segment is the primary revenue driver, generating income from interest earned on loans and investment securities, as well as fees from deposit accounts, debit card interchange, and treasury and commercial services. In the third quarter of 2024, the Bank segment's net interest income increased by 7.7% to $12.3 million compared to the prior year period, driven by higher average earning asset balances at higher average yields.
The Wealth segment, operating through Old Point Trust Financial Services, N.A., provides a valuable source of fee-based revenue. For the first nine months of 2024, the Wealth segment reported net income of $293 thousand, up from $63 thousand in the same period of 2023, driven by an increase in fiduciary and asset management fees.
The Parent segment primarily earns revenue from interest and dividends received from the Bank and Wealth subsidiaries. For the first nine months of 2024, the Parent segment reported net income of $6.6 million, compared to $6.2 million in the same period of 2023.
To further diversify its revenue streams and enhance profitability, Old Point has implemented a number of strategic initiatives in recent years. These include:
1. Expansion of Lending Capabilities: The company has made investments to strengthen its commercial and industrial lending capabilities, as well as its residential mortgage origination platform, to capitalize on opportunities in its local markets.
2. Deposit Growth Initiatives: Old Point has focused on growing its low-cost deposit base, particularly in the noninterest-bearing demand deposit and savings account categories, to improve its funding mix and reduce reliance on more expensive sources of liquidity.
3. Cost Optimization: The company has undertaken initiatives to streamline its operations and control noninterest expenses, including branch network optimization and strategic workforce reductions. These efforts have helped to improve the company's efficiency ratio, which stood at 80.93% for the nine months ended September 30, 2024, down from 81.49% in the prior-year period.
4. Technology Enhancements: Old Point has invested in upgrading its digital banking platforms and core technology infrastructure to enhance the customer experience and improve operational efficiency. These investments are intended to position the company for long-term competitiveness in an increasingly digital banking landscape.
Navigating Industry Challenges with Steady Leadership
Old Point has navigated a number of industry-wide challenges in recent years, including the COVID-19 pandemic, rising interest rates, and heightened competition from both traditional and non-traditional financial institutions. The company's steady leadership and prudent risk management have been instrumental in its ability to weather these storms and maintain its financial strength.
During the COVID-19 pandemic, Old Point worked closely with its customers to provide loan modifications, forbearance programs, and other forms of relief to support small businesses and individuals impacted by the economic disruption. The company also participated in the Paycheck Protection Program, helping to distribute millions of dollars in forgivable loans to its local communities. These efforts, combined with the company's strong credit culture, have helped to mitigate the financial impact of the pandemic on Old Point's operations.
The current rising interest rate environment has presented challenges for the banking industry, as institutions work to maintain net interest margins in the face of higher funding costs. Old Point has responded to this challenge through its disciplined asset-liability management strategies, carefully managing its deposit pricing and loan pricing to optimize its net interest income. The company has also leveraged its investment portfolio to help offset the pressure on its net interest margin.
Despite these industry headwinds, Old Point has maintained a steady focus on its long-term strategic objectives, including growing its presence in the Hampton Roads and Richmond markets, diversifying its revenue streams, and enhancing its operational efficiency. The company's management team, led by Chairman, President, and CEO Robert Shuford, Jr., has demonstrated a commitment to prudent decision-making and a willingness to adapt the company's strategies as market conditions evolve.
Liquidity
Old Point Financial Corporation maintains a strong liquidity position, ensuring its ability to meet customer withdrawals, fund loan demand, and navigate potential market disruptions. The company's liquidity strategy focuses on maintaining diverse funding sources and a robust portfolio of high-quality liquid assets.
As of September 30, 2024, Old Point reported total cash and cash equivalents of $156 million, representing 12.4% of total assets. Additionally, the company had $90 million in available federal funds lines of credit and $384.25 million in available Federal Home Loan Bank (FHLB) advances, providing substantial additional liquidity if needed.
The company's deposit base, which totaled $1.1 billion as of September 30, 2024, serves as a stable source of funding. Old Point's focus on growing core deposits, particularly low-cost noninterest-bearing demand deposits and savings accounts, has helped to improve its overall funding profile and reduce reliance on more volatile sources of liquidity.
Old Point's debt-to-equity ratio stood at 0.60 as of September 30, 2024, indicating a conservative approach to leverage. This strong liquidity position, combined with its prudent asset-liability management practices, positions the company well to navigate potential market volatility and support continued growth in its core banking and wealth management businesses.
Outlook and Conclusion
As Old Point Financial Corporation continues to navigate the challenges facing the banking industry, the company's strong financial foundation, diversified business model, and experienced leadership team position it well for the future. The company's focus on serving its local communities, coupled with its strategic initiatives to drive growth and improve profitability, suggest that Old Point is poised to continue delivering value for its shareholders over the long term.
The company's financial performance has shown resilience, with net income of $6.6 million for the first nine months of 2024, up 6.1% from the prior year period. Old Point achieved an annualized return on average equity of 8.10% and an annualized return on average assets of 0.61% during this period. The company's book value per share increased 15.1% to $22.74 as of September 30, 2024, compared to the prior year period, while tangible book value per share, a non-GAAP measure, increased 15.5% to $22.38.
Old Point's strong capital position, with regulatory capital ratios well above the required minimums, provides a solid foundation for future growth and resilience against potential economic headwinds. The company's commitment to maintaining a diversified revenue stream through its Bank, Wealth, and Parent segments helps to mitigate risks and capitalize on various market opportunities.
While the banking industry faces ongoing pressures, such as the rising interest rate environment and intense competition, Old Point's demonstrated resilience and commitment to disciplined execution suggest that the company is well-equipped to adapt and thrive in the years ahead. The company's focus on its core markets in the Hampton Roads and Richmond regions of Virginia, where it has deep roots and strong community ties, provides a stable base for continued growth.
As the banking industry continues to evolve, Old Point's investments in technology and digital banking solutions position it to meet the changing needs of its customers while maintaining its commitment to personalized service. The company's ability to balance traditional community banking values with modern financial solutions will be crucial in attracting and retaining customers in an increasingly competitive landscape.
Investors in Old Point Financial Corporation can take comfort in the company's track record of stability, its steadfast dedication to the communities it serves, and its ability to generate consistent returns even in challenging economic environments. With a solid financial foundation, a clear strategic vision, and a management team focused on long-term value creation, Old Point is well-positioned to continue its legacy as a trusted financial partner for its customers and a reliable investment for its shareholders.