Freedom Financial Holdings Announces Earnings for Third Quarter of 2022

FAIRFAX, Va., Oct. 28, 2022 /PRNewswire/ -- 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 $2,689,950, or $0.37 per diluted share, for the three months ended September 30, 2022. This compares to net income of $2,227,385 or $0.30 per diluted share, for the linked quarter and net income of $2,890,281 or $0.39 per diluted share for the three months ended September 30, 2021. Net income for the first nine months of 2022 was $7,701,632 or $1.05 per diluted share compared to net income of $7,984,873 or $1.09 per diluted share for the first nine months of 2021.

Joseph J. Thomas, President, and CEO, commented, "Our team continues to pivot in the face of changing market conditions to innovate our products and help our clients grow and succeed. These efforts translated into a pre-tax, pre-provision net income1 increase of 18.28% to $3.83 million in the third quarter of 2022 compared to the prior quarter. We were able to grow our assets at an annualized rate of 30.46% in the quarter and, more importantly, enjoyed annualized organic loan growth of 22.33% in the third quarter. We were also able to achieve strong annualized deposit growth of 43.01% in the quarter by attracting new clients to our high tech and high touch operating platform and offering competitive interest rates. While we experienced a 47 basis points increase in cost of funds when compared to the linked quarter to 92 basis points, our net margin remains strong at 3.71%, increasing 28 basis points compared to prior year. Total revenue2 was down by $223,021 or 2.32% compared to the prior year, as mortgage banking activity has been negatively impacted by higher rates. To achieve these results, we also used strong expense control to drive down our efficiency ratio4 to 59.19% for the third quarter compared to 65.10% for the prior quarter. We continue to maintain a strong balance sheet given the more challenging economic environment with allowance for loan losses at 1.13% (excluding PPP loans) and Tier 1 Capital Ratio at 13.62%."

Third Quarter 2022 Highlights include:

• Net income for the third quarter was $2,689,950 or $0.37 per diluted share compared to net income of $2,227,385 or $0.30 per diluted share in the linked quarter and net income of $2,890,281 or $0.39 per diluted share for the three months ended September 30, 2021.
• Return on Average Assets ("ROAA") was 1.15% for the quarter ended September 30, 2022, compared to 1.01% for the linked quarter and 1.35% for the three months ended September 30, 2021.
• Return on Average Equity ("ROAE") was 13.81% for the three months ended September 30, 2022, compared to 11.44% for the linked quarter and 14.18% for the three months ended September 30, 2021.
• Total assets were $964.28 million as of September 30, 2022, an increase of $87.61 million or 9.99% from total assets as of December 31, 2021.
• Loans held-for-investment (excluding PPP loans) increased by $35.02 million or 5.63% during the quarter.
• PPP loan balances decreased by $2.56 million during the third quarter on loan forgiveness and mortgage loans held for sale decreased by $3.66 million during the same period, on a decline in mortgage activity.
• Cash balances at the Federal Reserve and the Federal Home Loan Bank (FHLB) increased by $28.38 million during the third quarter.
• Available for sale investment securities increased by $11.17 million during the third quarter.
• Total deposits increased by $82.02 million or by 10.84% in the third quarter. Non-interest-bearing demand deposits decreased by $11.48 million from the linked quarter to $204.73 million and represented 24.41% of total deposits as of September 30, 2022.
• The net interest margin³ increased in the third quarter to 3.71%, higher by 6 basis points compared to the linked quarter and higher by 28 basis points compared to the same period in 2021. Excluding PPP loans, the net interest margin³ would have been 3.68%. The increase in the net interest margin³ across linked quarters was primarily due to higher yields on investment securities and loans offset by a rising cost of funds.
• The cost of funds was 0.92% for the third quarter, higher by 47 basis points compared to the linked quarter and higher by 55 basis points compared to the same period in 2021. This was driven largely by rising rates on interest checking deposits and money market accounts.
• Non-interest income decreased by 31.44% compared to the linked quarter and decreased by 56.41% compared to the same period in 2021. The decrease in non-interest income compared to the prior calendar quarter and same period in 2021 was primarily due to lower mortgage revenue stemming from a slowdown in mortgage activity as well as a reduction in SBA gain on sale revenue. During the current quarter, the Bank was granted the designation as a Preferred Lender by the SBA. This designation gives the Bank more authority to process, close, service, and liquidate SBA-guaranteed loans. As a Preferred Lender, the Bank is authorized to make SBA-guaranteed loans without prior SBA review of eligibility or creditworthiness allowing for a more seamless and timely loan process.
• Non-interest expense in the third quarter decreased by 8.03% compared to the linked quarter and decreased by 2.94% compared to the same period in 2021. The decrease in non-interest expense from the prior calendar quarters was primarily due to lower performance related costs: specifically, commissions paid to mortgage loan officers and mortgage settlement costs.
• The Efficiency Ratio⁴ was 59.19% for the quarter ended September 30, 2022, compared to 65.10% for the linked quarter and 59.57% for the same period in 2021.
• Non-accrual loans were unchanged in the third quarter from the prior period, and the ratio of non-performing assets to total assets was 0.90% as of September 30, 2022, compared to 0.10% as of September 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 $382,000 provision for loan losses during the third quarter and the ratio of the allowance for loan and lease losses to loans held-for-investment was 1.12% (or 1.13% excluding PPP loans, which carry a full faith and guarantee of the US Government) compared to 1.11% in the linked quarter (or 1.13% excluding PPP loans);
• The Bank continues to be well capitalized and capital ratios continue to be strong with a Leverage ratio of 11.59%, Common Equity Tier 1 ratio of 13.62%, Tier 1 Risk Based Capital ratio of 13.62% and a Total Capital ratio of 14.55%.

Net Interest Income

The Company recorded net interest income of $8.24 million for the third quarter of 2022, an increase of 8.25% compared to the linked quarter, and 17.83% higher than the same period in 2021. The net interest margin3 in the third quarter of 2022 was 3.71%, higher by 6 basis points compared to the linked quarter and higher by 28 basis points compared to the same period in 2021. Income from PPP loan forgiveness during the third quarter was $123,150 (from $2.10 million of PPP loans forgiven by the SBA), compared to PPP loan forgiveness income of $149,105 (from $3.15 million of PPP loans forgiven by the SBA) during the second quarter of 2022. Excluding the PPP loans, the net interest margin3 in the third quarter would have been 3.68%.

The following factors contributed to the changes in net interest margin3 during the third quarter of 2022 compared to the linked quarter:

• Yields on average earning assets increased by 50 basis points to 4.58% compared to 4.08% in the linked quarter, driven by higher yields on investment securities and loans.
• Loan yields increased by 47 basis points to 5.14% from 4.67% in the linked quarter, while yields on investment securities increased by 51 basis points to 3.29% from 2.78% in the linked quarter. Rising rates on floating rate securities contributed to the increase in investment yields.
• Cost of funds increased by 47 basis points to 0.92%, from 0.45% in the linked quarter, due to rising rates on interest checking and money market deposit accounts. Borrowing costs increased 10 basis points due to maturing borrowing repricing at higher rates as well as fewer low-cost advances from the PPP Liquidity Facility. Advances from the PPP Liquidity Facility are retired as the associated PPP loans are forgiven or paid off.
• Excluding PPP loans would have decreased the net interest margin³ by 6 basis points.

The following factors contributed to the changes in net interest margin3 during the third quarter of 2022 compared to the prior calendar quarter:

• Yields on average earning assets increased by 81 basis points to 4.58% compared to 3.77% in the prior calendar quarter, driven by higher yields on loans, investments, and interest earning cash balances.
• Loan yields increased by 59 basis points to 5.14% from 4.55% in the calendar quarter, while yields on investment securities increased by 106 basis points to 3.29% from 2.23% in the prior calendar quarter.
• Cost of funds increased by 55 basis points to 0.92%, from 0.37% in the calendar quarter, on higher deposit and borrowing costs.
• Excluding the impact of PPP loans from the same quarter previous year, the net interest margin³ increased by 45 basis points.

Non-interest Income

Non-interest income was $1.14 million for the third quarter, a decreased of 31.44% when compared to the linked quarter and a decreased of 56.41% when compared to the same period in 2021. The decrease in non-interest income compared to linked and calendar quarters was primarily due to lower mortgage revenue stemming from a slowdown in mortgage activity, as well as lower revenue from SBA loan sales. Secondary market premiums for SBA loans decreased during the third quarter, and the Company held more closed SBA loans on its balance sheet instead of selling them into the secondary market.

Total Revenue2

Total Revenue2, defined as the sum of net interest income, before provision for loan losses, and non-interest income, was higher by 1.15% compared to the linked quarter, primarily due to higher interest income on investment securities and loans offset by rising costs of deposits and reduced activity in current period gain-on-sale income. Total Revenue2 was lower by 2.32% compared to the same period in 2021, primarily due to lower non-interest income in the prior calendar quarter.

Non-interest Expenses

Non-interest expenses in the third quarter of 2022 decreased by 8.03% compared to the linked quarter and decreased by 2.94% compared to the same period in 2021. The decrease in non-interest expenses in the third quarter compared to the prior quarter was largely due to lower compensation costs, a decrease in legal fees and lower mortgage settlements costs.

The Efficiency Ratio4 was 59.19% for the quarter ended September 30, 2022, compared to 65.10% for the prior quarter and 59.57% for the same period in 2021.

Asset Quality

Non-accrual loans were $8,677,688 or 1.31% of loans held-for-investment as of September 30, 2022, compared to $8,712,326 or 1.38% of loans held-for-investment at the end of the linked quarter. There were no troubled debt restructurings ("TDRs") as of September 30, 2022. As of September 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 September 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 $8,677,688 or 0.90% of total assets as of September 30, 2022, compared to $8,712,326 or 0.97% 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 third quarter, it was determined that a $382,000 provision for loan losses was necessary to account for loan growth and changes to environmental factors. The Company booked a provision of $375,000 in the second quarter of 2022. The Company's ALLL ratio was 1.12% of loans held-for-investment (or 1.13% of loans held-for investment excluding PPP loans) as of September 30, 2022, compared to an ALLL ratio of 1.11% as of June 30, 2022 (or 1.13% of loans held-for-investment excluding PPP loans).

Total Assets

Total assets as of September 30, 2022, were $964.28 million compared to $895.52 million as of June 30, 2022. Changes in major asset categories during linked quarters were as follows:

• Cash balances at the Federal Reserve and Federal Home Loan Bank increased by $28.38 million
• Available for sale investment balances increased by $11.12 million
• PPP loan balances decreased by $2.56 million on loan forgiveness by the SBA
• Other loans held-for investment grew by $35.02 million
• Mortgage loans held-for-sale declined by $3.66 million

Total Liabilities

Total liabilities as of September 30, 2022, were $891.79 million compared to total liabilities of $820.05 million as of June 30, 2022. Total deposits were $838.60 million compared to total deposits of $756.58 million as of June 30, 2022. Non-interest-bearing demand deposits decreased by $11.48 million during the quarter and comprised 24.41% of total deposits at the end of the quarter, compared to 28.58% of total deposits as of June 30, 2022. Other interest-bearing demand deposits increased by $23.11 million, savings deposits decreased by $696.23 thousand and time deposits increased by $71.08 million during the quarter. Federal Home Loan Bank advances decreased by $10.14 million during the quarter, while PPP Liquidity Facility term advances decreased by $2.31 million, in line with PPP loan forgiveness.

Stockholders' Equity and Capital

Stockholders' equity as of September 30, 2022, was $72.49 million compared to $75.47 million as of June 30, 2022. Additional paid-in capital was $58.45 million on September 30, 2022, compared to $58.82 million as of June 30, 2022. Accumulated Other Comprehensive Income ("AOCI"), which generally comprises unrealized gains and losses on available-for-sale securities and derivative positions, decreased by $5.30 million on net unrealized losses during the third quarter of 2022. Retained earnings were $31.25 million on September 30, 2022, compared to $28.56 million at the end of the prior quarter. Total shares issued and outstanding were 7,281,606 as of September 30, 2022, compared to 7,319,006 shares as of June 30, 2022. The tangible book value5 of the Company's common stock on September 30, 2022, was $9.96 per share compared to $10.31 per share as of June 30, 2022, and $11.14 per share as of September 30, 2021.

As of September 30, 2022, the Bank's capital ratios were well above regulatory mini mum capital ratios for well-capitalized bank holding companies. The Bank's capital ratios as of September 30, 2022, and June 30, 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, Virginia and an SBA division headquartered in Mamaroneck, NY. 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