Freedom Financial Holdings Announces Earnings for Second Quarter of 2022

FAIRFAX, Va. (July 29, 2022) - Freedom Financial Holdings (OTCQX: FDVA), (the "Company" or "Freedom"), the holding company for The Freedom Bank of Virginia (the "Bank") today announced net income of $2,227,385 or $0.30 per diluted share, for the three months ended June 30, 2022. This compares to net income of $2,784,296 or $0.38 per diluted share, for the linked quarter and net income of $2,626,381 or $0.36 per diluted share for the three months ending June 30, 2021.

Joseph J. Thomas, President, and CEO, commented, "We experienced the full impact of cyclical changes in the economy in the second quarter of 2022 as fee-based revenue fell meaningfully, but the decline was largely offset by very strong core income from loan growth and net interest margin expansion. As interest rates increased, the residential real estate market began to cool, with mortgage banking revenues declining by $1.04 million or 51.29%. Likewise, as the federal government's Paycheck Protection Program ("PPP") wound down, the Bank's income from PPP loan forgiveness decreased by $364,438 or 244.42%, in the second quarter of 2022, compared to the same period in 2021. Our banking team was able to offset these expected declines in fee-based revenue with growth in net interest income (excluding the impact of PPP loans) of 18.24% in the second quarter of 2022 compared to the same period in 2021. This was driven by strong growth in loans held for investment (excluding PPP loans) of 28.72% annualized and 23.50% annualized growth in deposits, relative to the prior quarter. In response to the increase in interest rates, the Bank's net interest margin expanded by 27-basis points to 3.65% in the second quarter of 2022 compared to the same period in 2021. Consequently, our pre-tax, pre-provision net income declined by 11.5% to $3.24 million in the second quarter of 2022 compared to the same period in 2021. Notably, the allowance for loan losses at 1.13% (excluding PPP loans) and Tier 1 Capital Ratio at 13.84% puts us in a very strong position to manage through a potentially more challenging economic environment and continue to focus on proactively serving and innovatively growing with our clients."

Second Quarter 2022 Highlights include:

• Net income for the second quarter was $2,227,385 or $0.30 per diluted share compared to net income of $2,784,297 or $0.38 per diluted share in the linked quarter and net income of $2,626,381 or $0.36 per diluted share for the three months ending June 30, 2021.
• Return on Average Assets ("ROAA") was 1.01% for the quarter ended June 30, 2022, compared to 1.29% for the linked quarter and 1.24% for the three months ended June 30, 2021.
• Return on Average Equity ("ROAE") was 11.44% for the three months ended June 30, 2022, compared to 13.53% for the linked quarter and 13.65% for the three months ended June 30, 2021.
• Total assets were $895.52 million on June 30, 2022, an increase of $32.40 million or 3.75% from the end of the prior quarter and an increase of 2.15% from total assets on December 31, 2021.
• Loans held-for-investment (excluding PPP loans) increased by $41.60 million or 7.16% during the quarter.
• PPP loan balances decreased by $3.66 million during the second quarter on loan forgiveness and mortgage loans held for sale decreased by $4.49 million during the same period, on a decline in mortgage activity.
• Cash balances at the Federal Reserve decreased by $5.40 million during the second quarter.
• Available for sale investment securities increased by $1.28 million during the second quarter.
• Total deposits increased by $41.90 million or by 5.86% in the second quarter. Non-interest-bearing demand deposits increased by $8.04 million from the linked quarter to $216.21 million and represented 28.58% of total deposits on June 30, 2022.
• Excluding income from PPP loans, net interest income in the second quarter of 2022 increased by $1.68 million or by 29.17% compared to the same period in 2021. Excluding PPP loans, the net interest margin for the second quarter of 2022 was 3.62%, higher by 9 basis points compared to the prior quarter and was higher by 49 basis points compared to the same period in 2021. The net interest margin for the second quarter of 2022 was 3.65% if the income from PPP loans was included.
• The cost of funds was 0.45% for the second quarter, higher by 9 basis points compared to the linked quarter and higher by 3 basis points compared to the same period in 2021, as deposit and borrowing costs increased during the quarter.
• Non-interest income decreased by 8.84% compared to the linked quarter and decreased by 27.72% compared to the same period in 2021. The decrease in non-interest income compared to the linked quarter was primarily due to lower mortgage revenue and other fee income. The decrease in non-interest income compared to the calendar quarter was primarily due to lower mortgage revenue stemming from a slowdown in mortgage activity, partially offset by higher revenue from SBA loan sales and other fee income.
• Non-interest expense in the second quarter increased by 3.72% compared to the linked quarter and was higher by 6.09% compared to the same period in 2021. The increase in non-interest expense in linked quarters was primarily due to higher professional fees and an increase in data processing expenses. Higher expenses compared to the calendar quarter were primarily related to an increase in compensation costs in the second quarter of 2022.
• The Efficiency Ratio was 65.10% for the quarter ended June 30, 2022, compared to 61.70% for the linked quarter and 62.38% for the same period in 2021.
• Non-accrual loans were relatively unchanged in the second quarter from the prior period, and the ratio of non-performing assets to total assets was 0.97% on June 30, 2022, compared to 0.11% on June 30, 2021.
• As a result of an increase in loans held-for-investment during the quarter and an assessment of the risks in the held-for-investment loan portfolio, the Company recognized a $375,000 provision for loan losses during the second quarter and the ratio of the allowance for loan and lease losses ("ALLL") to loans held-for-investment was 1.11% (or 1.13% excluding PPP loans, which carry a full faith and credit guarantee of the US Government) compared to 1.12% in the linked quarter (or 1.15% excluding PPP loans);
• The Bank continues to be well capitalized and capital ratios continue to be strong with a Leverage ratio of 11.95%, Common Equity Tier 1 ratio of 13.84%, Tier 1 Risk Based Capital ratio of 13.84% and a Total Capital ratio of 14.77%.

Paycheck Protection Program ("PPP") Activity

For the first six months of 2022, 103 PPP loans with balances of $13.35 million were forgiven by the SBA, and the Company recognized $608,952 of income from acceleration of processing fees associated with these loans. This compares with 354 PPP loans with balances of $55.08 million forgiven by the SBA in the first six months of 2021 with $1.09 million of income from acceleration of processing fees.

Net Interest Income

The Company recorded net interest income of $7.61 million for the second quarter of 2022, relatively unchanged compared to the linked quarter, and 11.53% higher than the same period in 2021.

Income from PPP loans during the second quarter of 2022 was $166,582 (including $149,105 from forgiveness of $3.15 million of PPP loans), compared to PPP loan income of $504,177 (including $459,847 from forgiveness of $14.42 million of PPP loans) during the first quarter of 2022, and $1,061,442 (including $513,343 from forgiveness of $30.25 million of PPP loans) during the second quarter of 2021. Excluding income from PPP loans, net interest income in the second quarter of 2022 increased by $338,597 or 4.76%, and by $1.68 million or 29.17% compared to the same period in 2021.

The net interest margin in the second quarter of 2022 was 3.65%, lower by 3 basis points compared to the linked quarter and higher by 27 basis points compared to the same period in 2021. Excluding PPP loans, the net interest margin increased by 9 basis points compared to the prior quarter and was higher by 49 basis points compared to the same period in 2021.

The following factors contributed to the changes in net interest margin during the second quarter of 2022 compared to the linked quarter:

• Yields on average earning assets increased by 7 basis points to 4.08% compared to 4.01% in the linked quarter, driven by higher yields on investments and deposits at the Federal Reserve, offset partially by lower yields on loans during the quarter.
• Loan yields decreased by 8 basis points to 4.67% from 4.75% in the linked quarter, while yields on investment securities increased by 33 basis points to 2.78% from 2.45% in the linked quarter. Excluding PPP loans, loan yields would have increased by 5 bp from the prior quarter.
• Cost of funds increased by 9 basis points to 0.45%, from 0.36% in the linked quarter, on higher deposit and borrowing costs.
• Excluding the impact of PPP loans from the second and prior quarter, the net interest margin increased by 9 basis points across linked quarters.

The following factors contributed to the changes in net interest margin during the second quarter of 2022 compared to the calendar quarter:

• Yields on average earning assets increased by 30 basis points to 4.08% compared to 3.78% in the calendar quarter, driven by higher yields on loans, investments, and deposits at the Federal Reserve.
• Loan yields increased by 19 basis points to 4.67% from 4.48% in the calendar quarter, while yields on investment securities increased by 56 basis points to 2.78% from 2.22% in the calendar quarter.
• Cost of funds increased by 3 basis points to 0.45%, from 0.42% in the calendar quarter, on higher deposit and borrowing costs.
• Excluding the impact of PPP loans from the second and calendar quarter, the net interest margin increased by 49 basis points across quarters.

Non-interest Income

Non-interest income was $1.66 million for the second quarter, lower by 8.84% compared to the linked quarter and lower by 27.72% compared to the same period in 2021. The lower non-interest income across linked quarters was primarily due to a decline in mortgage revenue and lower fee income from other sources, while the decline in non-interest income compared to the calendar quarter was largely due to lower mortgage gain-on-sale and fee revenue, stemming from a decline in mortgage activity, partially offset by higher SBA income and fee income from other sources.

Total Revenue

Total revenue, defined as the sum of net interest income, before provision for loan losses, and non-interest income, was lower by 1.69% compared to the linked quarter, primarily due to lower non-interest income, and higher by 1.66% compared to the same period in 2021, primarily due to net margin expansion and loan growth.

Non-interest Expenses

Non-interest expenses in the second quarter of 2022 were higher by 3.72% compared to the linked quarter and increased by 6.09% compared to the same period in 2021. The increase in non-interest expenses in the second quarter compared to the prior quarter was largely due to higher professional fees and an increase in data processing expenses. Higher expenses compared to the calendar quarter were largely due to an increase in compensation costs in the second quarter of 2022.

The Efficiency Ratio was 65.10% for the quarter ended June 30, 2022, compared to 61.70% for the prior quarter and 62.38% for the same period in 2021.

Asset Quality

Non-accrual loans were $8,712,326 or 1.38% of loans held-for-investment as of June 30, 2022, compared to $8,770,552 or 1.48% of loans held-for-investment at the end of the linked quarter. There were no troubled debt restructurings ("TDRs") as June 30, 2022. On June 30, 2022, there were no loans that were 90 days or more past due and accruing. There was no Other Real Estate Owned ("OREO") on the balance sheet as of June 30, 2022. Total non-performing assets (defined as the sum of loans on non-accrual, loans greater than 90 days past due and accruing, loans that are TDRs but not on non-accrual, and OREO assets) were $8,712,326 or 0.97% of total assets on June 30, 2022, compared to $8,770,552 or 1.02% of assets, at the end of the linked quarter.

Following an assessment of the collectability of the loans held-for-investment at the end of the second quarter, it was determined that a $375,000 provision for loan losses was necessary to account for loan growth and changes to environmental factors. The Company booked a provision of $191,000 in the first quarter of 2022. The Company's ALLL ratio was 1.11% of loans held-for-investment (or 1.13% of loans held-for investment excluding PPP loans) as of June 30, 2022, compared to an ALLL ratio of 1.12% on March 31, 2022 (or 1.15% of loans held-for-investment excluding PPP loans).

Total Assets

Total assets on June 30, 2022, were $895.52 million compared to $863.12 million on March 31, 2022. Changes in major asset categories during linked quarters were as follows:

• Cash balances at the Federal Reserve decreased by $5.40 million
• Available for sale investment balances increased by $1.28 million
• PPP loan balances decreased by $3.66 million on loan forgiveness by the SBA
• Other loans held-for investment grew by $41.60 million
• Mortgage loans held-for-sale declined by $4.49 million

Total Liabilities

Total liabilities on June 30, 2022, were $820.05 million compared to total liabilities of $783.33 million on March 31, 2022. Total deposits were $756.58 million compared to total deposits of $714.69 million on March 31, 2022. Non-interest-bearing demand deposits increased by $8.04 million during the quarter and comprised 28.58% of total deposits at the end of the quarter, compared to 31.66% of total deposits on December 31, 2021. Other interest-bearing demand deposits increased by $9.02 million, savings deposits decreased by $730,576 and time deposits increased by $25.56 million during the quarter. Federal Home Loan Bank advances decreased by $10.75 million during the quarter, while Federal Reserve borrowings increased by $6.28 million.

Stockholders' Equity and Capital

Stockholders' equity on June 30, 2022, was $75.47 million compared to $79.79 million on March 31, 2022. Additional paid-in capital was $58.82 million on June 30, 2022, compared to $58.66 million on March 31, 2022. Accumulated Other Comprehensive Income ("AOCI"), which generally comprises unrealized gains and losses on available-for-sale securities and derivative positions, decreased by $6.71 million on net unrealized losses during the second quarter of 2022. Retained earnings were $28.56 million on June 30, 2022, compared to $26.33 million at the end of the prior quarter. Total shares issued and outstanding were 7,319,006 on June 30, 2022, compared to 7,286,915 shares on March 31, 2022. The tangible book value of the Company's common stock on June 30, 2022, was $10.29 per share compared to $10.95 per share on March 31, 2022, and $10.81 per share on June 30, 2021.

As of June 30, 2022, the Bank's capital ratios were well above regulatory minimum capital ratios for well-capitalized bank holding companies. The Bank's capital ratios on June 30, 2022, and March 31, 2022, were as follows:

About Freedom Financial Holdings, Inc.

Freedom Financial Holdings, Inc. is the holding company of The Freedom Bank of Virginia, a community bank with locations in Fairfax, Reston, Chantilly, Vienna, and Manassas, Virginia. The Freedom Bank of Virginia also has a mortgage division headquartered in Chantilly. For information about deposit, loan and other services, visit the website at www.freedom.bank.

Forward Looking Statements

This release contains forward-looking statements, including our expectations with respect to future events that are subject to various risks and uncertainties. Factors that could cause actual results to differ materially from management's projections, forecasts, estimates, and expectations include: fluctuation in market rates of interest and loan and deposit pricing; general economic and financial market conditions, in the United States generally and particularly in the markets in which the Company operates and which its loans are concentrated, including the effects of declines in real estate values, increases in unemployment levels, inflation, recessions and slowdowns in economic growth, including as a result of COVID-19 and the impact of the geopolitical conflict between Russia and Ukraine; maintenance and development of well-established and valued client relationships and referral source relationships; the adequacy or inadequacy of our allowance for loan and lease losses; acquisition or loss of key production personnel; and the potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, wars, terrorist acts or public health events (such as COVID-19), and of governmental and societal responses thereto; these potential adverse effects may include, without limitation, adverse effects on the ability of the Company's borrowers to satisfy their obligations to the Company, on the value of collateral securing loans, on the demand for the Company's loans or its other products and services, on incidents of cyberattack and fraud, on the Company's liquidity or capital positions, on risks posed by reliance on third-party service providers, on other aspects of the Company's business operations and on financial markets and economic growth. The Company cautions readers that the list of factors above is not exclusive. The forward-looking statements are made as of the date of this release, and the Company may not undertake steps to update the forward-looking statements to reflect the impact of any circumstances or events that arise after the date the forward-looking statements are made. In addition, our past results of operations are not necessarily indicative of future performance. Some of the financial tables in this document reflect classifications to accounts to improve consistency in financial reporting.

Contact:
Joseph J. Thomas
President & Chief Executive Officer
703-667-4161: Phone
jthomas@freedom.bank: Email