The Freedom Bank of Virginia Announces Earnings for the Second Quarter of 2019

FAIRFAX, Va. (July 30, 2019) – The Freedom Bank of Virginia (OTCQX: FDVA), (the “Bank” or “Freedom”) today announced net income of $509,075, or $0.07 per diluted share, for the quarter ended June 30, 2019.

Joseph J. Thomas, President and CEO, commented “We are pleased to see the efforts of the restructuring plan and new innovation strategy take hold resulting in a 20.03% increase in pre-tax profits in the second quarter of 2019 to $629,837 compared to the prior quarter and resumed growth of our balance sheet with a 15.61% annualized increase in total loans to $403.2 million and a 49.31% annualized increase in noninterest bearing DDA accounts to $82.8 million, both compared to the prior quarter. The gains in pre-tax income were driven by a 50.18% increase in non-interest income to $1.4 million due to strong production results in our residential mortgage business and a reduction of 2.71% in non-interest expenses, both compared to the prior quarter. However, conditions in banking remain challenging for top line revenue as net interest income declined 8.22% to $3.77 million for the second quarter of 2019 compared to the previous quarter, and we have work to do in order to earn more lead client relationships and remix deposits so as to increase C&I loans and lower the cost of core deposits,” continued Thomas.

Second Quarter 2019 Highlights include:

Net income for the quarter was $509,075 or $0.07 per diluted share compared to $515,986 or $0.07 per diluted share for the first quarter of 2019, and $700,197 or $0.10 per diluted share, for the quarter ended June 30, 2018. Net income for the six months ended June 30, 2019 was $1,025,061 or $0.14 per diluted share compared to $1,008,425 or $0.15 per diluted share for the six months ended June 30, 2018;
Return on Average Assets (“ROAA”) was 0.42% for the quarter ended June 30, 2019 compared to 0.43% for the previous quarter and 0.55% for the quarter ended June 30, 2018. ROAA was 0.43% for the six months ended June 30, 2019 compared to 0.39% for the six months ended June 30, 2018;
Return on Average Equity (“ROAE”) was 3.36% for the quarter ended June 30, 2019 compared to 3.51% for the previous quarter and 5.07% for the quarter ended June 30, 2018. ROAE was 3.44% for the six months ended June 30, 2019 compared to 3.66% for the six months ended June 30, 2018;
Total assets were $489.91 million on June 30, 2019, higher by $11.09 million or 2.32% compared to December 31, 2018;
Loans receivable increased by $11.61 million or by 3.08% during the second quarter, while loans held-for-sale increased by $3.53 million or by 33.44% in the second quarter;
Available-for-sale Securities decreased by $7.18 million or by 13.25% during the quarter;
Total deposits increased by $3.18 million or by 0.80% in the second quarter;
Non-interest bearing demand deposits increased by $8.97 million during the quarter to $81.75 million, and comprised 20.52% of total deposits at June 30, 2019;
The net interest margin was 3.27% for the quarter, lower by 33 basis points compared to the previous quarter and by 32 basis points compared to the same quarter in 2018;
Non-interest income increased by 50.18% compared to the previous quarter, and by 20.23% compared to the same period in 2018, primarily due to higher revenue from the sale of mortgage loans and a gain on sale of investment securities during the second quarter;
Non-interest expenses decreased by 2.71% and by 9.59% compared to the previous quarter and the same period in 2018, respectively. The Efficiency Ratio was 84.97% for the quarter ended June 30, 2019 compared to 89.59% for the previous quarter and 85.65% for the same period in 2018;
The Bank recognized a provision for loan losses of $147,500 during the second quarter. The allowance for loan and lease losses (“ALLL”) was 1.14% of loans receivable at June 30, 2019 compared to 1.16% of loans receivable at December 31, 2018;
Asset quality remains strong with the ratio of non-performing assets to total assets at 0.65% as of June 30, 2019 compared to a ratio of 0.69% as of December 31, 2018;
Capital ratios continue to be strong, and above regulatory minimums for well-capitalized banks: Total Risk Based Capital ratio of 15.98%, Tier 1 Risk Based Capital ratio of 14.91%, Common Equity Tier 1 ratio of 14.91% and Tier 1 Leverage ratio of 12.71% at June 30, 2019.

Net Interest Income

The Bank recorded net interest income of $3.77 for the second quarter of 2019, a decrease of 8.22% compared to the previous quarter and lower by 16.38% compared to the same period in 2018. The net interest margin in the second quarter of 2019 was 3.27%, lower by 33 basis points compared to the previous quarter, and lower by 32 basis points compared to the same period in 2018.

The following factors contributed to the changes in net interest margin during the second quarter of 2019 compared to the previous quarter:

Yields on average earning assets decreased by 23 basis points to 4.76% compared to 4.99% in the previous quarter, primarily due to a decline in loan yields during the second quarter.
Loan yields decreased by 25 basis points to 5.17% from 5.42% in the previous quarter, while yields on investment securities decreased by 3 basis points to 2.80%, from 2.83% in the previous quarter. The decline in loan yields was related to reversal of interest income on loans that had been placed on nonaccrual during the quarter, payoffs of consumer loans and lower yields on loans held-for-sale.
Cost of funds increased by 12 basis points to 1.66%, from 1.54% in the previous quarter, primarily due to higher costs related to time deposits.

The following factors contributed to the changes in net interest margin during the second quarter of 2019 compared to the same period in 2018:

Yields on average earning assets increased by 13 basis points to 4.76% compared to 4.63% in the quarter ended June 30, 2018.
Loan yields decreased by 3 basis points to 5.17% from 5.20% in the quarter ended June 30, 2018, while yields on investment securities increased by 19 basis points to 2.80%, from 2.61% in the quarter ended June 30, 2018.
Cost of funds increased by 49 basis points to 1.66%, from 1.17% in the quarter ended June 30, 2018, primarily due to higher costs related to time deposits.

Non-interest Income

Non-interest income increased by 50.18% compared to the previous quarter and was higher by 20.23% compared to the quarter ended June 30, 2018. The principal contributors to the increase in non-interest income were higher gain-on-sale revenue from mortgage loans and a gain from sale of investment securities during the quarter. The proceeds of the sale of investment securities were redeployed into higher yielding loans.

Total revenue from the gain on sale of mortgage loans increased by 46.96% compared to the previous quarter, and by 8.45% compared to the same period in 2018. The increase in gain-on-sale revenue was driven by the higher volume of mortgage originations during the second quarter of 2019.

Non-interest Expenses

Non-interest expenses decreased by 2.71% compared to the previous quarter and by 9.59% compared to the same period in 2018. Non-interest expenses decreased by 6.12% for the first six months of 2019 compared to the same period in 2018.

Principal categories of non-interest expenses that changed in the second quarter of 2019 were the following:

Compensation costs decreased by 7.54% compared to the previous quarter and by 9.16% compared to the same period in 2018.
Professional fees were also lower by 24.58% compared to the previous quarter, and by 33.92% compared to the same period in 2018.
Equipment and depreciation expenses increased in the second quarter of 2019 primarily due to licensing of on-line banking software.
Business development expenses also increased in the second quarter of 2019 primarily due to costs related to advertising and rebranding.

Income Taxes

Income tax expense was $120,769 in the second quarter of 2019, equivalent to an effective tax rate of 19.17% compared to tax expense of $114,300, equivalent to an effective tax rate of 14.03% for the same period in 2018.

Asset Quality

Non-accrual loans were $3.05 million or 0.76% of total loans at the end of the second quarter of 2019, compared to $2.48 million or 0.64% at the end of the prior quarter. As of June 30, 2019, there were no troubled debt restructurings (“TDRs”) not on nonaccrual compared to two TDRs not on non-accrual with a balance of $460,805, or 0.12% of total loans, at the end of the prior quarter. On June 30, 2019 there were $148,321 of loans that were 90 days or more past due and not on no-accrual, equivalent to 0.04% of total loans, compared to no loans that were 90 days or more past due and not on non-accrual on March 31, 2019. Additionally, there was no other real estate owned (“OREO”) on the balance sheet on June 30, 2019 or March 31, 2019. Total non-performing assets (defined as the sum of loans on non-accrual, loans greater than 90 days past due and not on non-accrual, loans that were TDRs but not on non-accrual, and OREO assets) were $3.19 million or 0.65% of total assets at June 30, 2019 compared to $2.94 million or 0.62% of total assets, at the end of the previous quarter.

The Bank recognized a provision for loan and lease losses of $147,500 during the second quarter, compared to no provision in the prior quarter. The Bank’s ALLL was 1.14% of loans receivable at June 30, 2019, compared to 1.16% of loans receivable at December 31, 2018 and 1.09% of loans receivable on June 30, 2018.

Total Assets

Total assets at June 30, 2019 were $489.91 million compared to $477.90 million on March 31, 2019 and $478.81 million on December 31, 2018. Changes in major asset categories during linked quarters were as follows:

Cash balances and deposits with other banks increased by $3.53 million during the quarter.
The available-for-sale securities portfolio decreased by $7.18 million compared to March 31, 2019, as the Bank sold bonds during the quarter for a gain. Proceeds from the sale were deployed into higher yielding loans.
Loans receivable increased by $11.61 million during the quarter.
Loans held-for-sale increased by $3.53 million during the quarter.

Total Liabilities

Total liabilities at June 30, 2019 were $428.66 million, compared to total liabilities of $417.62 million on March 31, 2019 and compared to total liabilities of $419.70 million on December 31, 2018. Total deposits were $398.41 million on June 30, 2019 compared to $395.23 million on March 31, 2019, and compared to total deposits of $400.73 million on December 31, 2018. On a linked quarter basis, interest bearing demand deposits declined by $9.58 million, with the bulk of the decline occurring in money market balances, while time deposits increased by $3.73 million. The decline in high cost interest bearing deposits was partially offset by an increase in non-interest bearing deposits during the quarter. Non-interest bearing demand deposits increased during the quarter by $8.97 million to $81.75 million and comprised 20.52% of total deposits at the end of the quarter, compared to 18.41% of total deposits on March 31, 2019 and 16.72% of total deposits on December 31, 2018. Federal Home Loan Bank advances increased by $7.85 million during the quarter.

Stockholders’ Equity and Capital

Stockholders’ equity at June 30, 2019 was $61.25 million compared to $60.29 million on March 31, 2019 and $59.11 million on December 31, 2018. Additional paid in capital at June 30, 2019 was $57.66 million compared to $57.53 million on March 31, 2019 and compared to $57.42 million on December 31, 2018. Accumulated Other Comprehensive Income (“AOCI”), which generally comprises unrealized gains and losses on available-for-sale securities on the balance sheet, increased by $330,081 on lower unrealized losses during the quarter and has increased by $870,921 since December 31, 2018. Total shares issued and outstanding were 7,122,102 on June 30, 2019 compared to 6,981,602 on December 31, 2018. The book value of the Bank’s common stock at June 30, 2019 was $8.60 compared to $8.47 per share on December 31, 2018.

As of June 30, 2019, all of the Bank’s capital ratios were well above regulatory minimum capital ratios for well capitalized banks. The Bank’s capital ratios on June 30, 2019 and December 31, 2018 were as follows:

	June 30, 2019	December 31, 2018
Total Capital Ratio	15.98%	15.85%
Tier 1 Capital Ratio	14.91%	14.73%
Common Equity Tier 1 Capital Ratio	14.91%	14.73%
Leverage Ratio	12.71%	12.15%

About Freedom Bank

Freedom Bank is a community-oriented bank with locations in Fairfax, Reston, Chantilly and Vienna, Virginia. Freedom Bank also has a mortgage division headquartered in Chantilly. For information about Freedom Bank’s deposit and loan services, visit the Bank’s website at www.freedombankva.com.

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, adverse changes in the overall national economy as well as adverse economic conditions in our specific market areas, 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, and acquisition or loss of key production personnel. The Bank 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 Bank 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.


	(Unaudited)			(Unaudited)			(Audited)
	June 30,			March 31,			December 31,
	2019			2019			2018
ASSETS
Cash and Due from Banks	$	1,451,117		$	1,796,929		$	1,270,559
Interest Bearing Deposits with Banks		17,686,061			13,804,921			14,376,684
Securities Available-for-Sale		46,997,845			54,177,183			48,204,339
Restricted Stock Investments		3,277,800			3,041,300			3,076,000
Loans Held for Sale		14,094,057			10,562,219			4,415,520
Loans Receivable		389,069,949			377,458,580			394,080,457
Allowance for Loan Losses		(4,435,737	)		(4,509,489	)		(4,572,392	)
Net Loans		384,634,112			372,949,091			389,508,065
Bank Premises and Equipment, net		1,618,940			1,678,539			1,748,935
Other Real Estate Owned		-			-			-
Accrued Interest Receivable		1,368,964			1,363,329			1,229,534
Deferred Tax Asset		864,642			864,642			1,247,513
Bank-Owned Life Insurance		12,589,855			12,493,532			12,401,317
Other Assets		5,322,137			5,170,809			1,336,521
Total Assets		489,905,630		$	477,902,494		$	478,814,987
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Demand deposits
Non-interest bearing	$	81,750,368		$	72,778,632		$	67,012,857
Interest bearing		112,197,895			121,777,996			128,403,357
Savings deposits		2,544,341			2,481,822			3,023,239
Time deposits		201,914,936			198,188,774			202,292,311
Total Deposits		398,407,542			395,227,224			400,731,764
Federal Home Loan Bank advances		24,850,000			17,000,000			17,142,857
Other accrued expenses		4,768,419			4,981,062			1,607,492
Accrued interest payable		630,123			408,730			218,537
Total Liabilities		428,656,083			417,617,016			419,700,650
Stockholders' Equity
Preferred stock, $0.01 par value, 5,000,000 shares authorized;
0 shares issued and outstanding, 2019 and 2018		-			-			-
Common stock, $0.01 par value, 25,000,000 shares:
23,000,000 shares voting and 2,000,000 shares non-voting.
Voting Common Stock:
6,449,102, 6,323,602, and 6,308,602 shares issued and outstanding
at June 30, 2019, March 31, 2019 and December 31, 2018, respectively
(includes 125,000, 115,000 and 115,000 unvested shares at June 30, 2019,
March 31, 2019 and December 31, 2018 respectively)		63,236			63,236			63,086
Non-Voting Common Stock:
673,000 shares issued and outstanding June 30, 2019
March 31, 2019 and December 31 2018		6,730			6,730			6,730
Additional paid-in capital		57,655,145			57,530,232			57,416,068
Accumulated other comprehensive loss, net		(253,180	)		(583,261	)		(1,124,101	)
Retained earnings		3,777,616			3,268,541			2,752,554
Total Stockholders' Equity		61,249,547			60,285,478			59,114,337
Total Liabilities and Stockholders' Equity	$	489,905,630		$	477,902,494		$	478,814,987

THE FREEDOM BANK OF VIRGINIA
CONSOLIDATED STATEMENTS OF OPERATIONS


	For the quarter ended		For the quarter ended		For the six months ended		For the six months ended
	June 30,		June 30,		June 30,		June 30,
	2019		2018		2019		2018
Interest Income
Interest and fees on loans	$	5,022,245	$	5,268,814	$	10,226,963	$	10,386,582
Interest on investment securities		381,352		449,094		748,369		904,033
Interest on Federal funds sold		94,979		107,204		220,307		249,620
Total Interest Income		5,498,576		5,825,112		11,195,639		11,540,235
Interest Expense
Interest on deposits		1,606,953		1,231,777		3,108,272		2,505,552
Interest on borrowings		120,696		83,513		207,828		128,938
Total Interest Expense		1,727,649		1,315,290		3,316,100		2,634,490

Net Interest Income		3,770,927		4,509,823		7,879,539		8,905,745
Provision for Loan Losses		147,500		-		147,500		-
Net Interest Income after						7,732,039		8,905,745
Provision for Loan Losses		3,623,427		4,509,823
Non-Interest Income
Gain on sale of mortgage loans		1,168,251		1,077,193		1,963,191		1,653,469
Service charges and other income		32,462		73,695		74,893		108,617
Gains on sale of securities		103,034		-		105,722		-
Increase in cash surrender value of bank-
owned life insurance		96,324		13,585		188,539		27,122
Total Non-interest Income		1,400,071		1,164,473		2,332,344		1,789,207
Non-Interest Expenses
Officer and employee compensation
and benefits		2,711,905		2,985,202		5,644,898		5,678,471
Occupancy expense		288,213		277,968		563,989		551,080
Equipment and depreciation expense		277,717		184,298		463,238		325,868
Insurance expense		77,984		200,437		155,968		281,933
Professional fees		243,880		369,089		567,238		1,000,611
Data and item processing		187,073		294,419		439,620		571,776
Business development		124,276		70,108		159,545		140,685
Franchise taxes		98,717		138,310		240,604		269,465
Mortgage fees and settlements		198,771		140,155		330,652		265,636
Other operating expense		185,124		199,813		344,050		405,102
Total Non-interest Expenses		4,393,660		4,859,799		8,909,802		9,490,627
Income before Income Taxes		629,837		814,497		1,154,580		1,204,325
Income Tax Expense		120,769		114,300		129,525		195,900
Net Income	$	509,075	$	700,197	$	1,025,061	$	1,008,425
Earnings per Common Share - Basic	$	0.07	$	0.11	$	0.14	$	0.15
Earnings per Common Share - Diluted	$	0.07	$	0.10	$	0.14	$	0.15
Weighted-Average Common Shares
Outstanding - Basic		7,114,190		6,629,749		7,102,226		6,578,328
Weighted-Average Common Shares
Outstanding - Diluted		7,177,984		6,856,291		7,163,661		6,804,871

THE FREEDOM BANK OF VIRGINIA
CONSOLIDATED STATEMENTS OF OPERATIONS


	For the quarter ended		For the quarter ended		For the quarter ended			For the quarter ended			For the quarter ended
	June 30,		March 31,		December 31,			September 30,			June 30,
	2019		2019		2018			2018			2018
Interest Income
Interest and fees on loans	$	5,022,252	$	5,204,718	$	5,320,254		$	5,401,108		$	5,268,815
Interest on investment securities		381,352		367,017		337,702			498,506			449,094
Interest on Federal funds sold and Other		94,979		125,328		174,693			60,077			107,204
Total Interest Income		5,498,583		5,697,063		5,832,649			5,959,691			5,825,113

Interest Expense
Interest on deposits		1,606,953		1,501,319		1,457,042			1,389,640			1,231,777
Interest on borrowings		120,696		87,132		89,481			103,953			83,513
Total Interest Expense		1,727,649		1,588,451		1,546,523			1,493,593			1,315,290

Net Interest Income		3,770,934		4,108,612		4,286,126			4,466,098			4,509,823
Provision for Loan Losses		147,500		-		406,000			-			-
Net Interest Income after
Provision for Loan Losses		3,623,434		4,108,612		3,880,126			4,466,097			4,509,823
Non-Interest Income
Gain on sale of mortgage loans		1,168,251		794,939		668,073			846,653			1,077,193
Service charges and other income		32,462		42,431		43,196			36,079			73,695
Gains on sale of securities		103,034		2,688		-			(1,181,108	)		-
Increase in cash surrender value of bank-
owned life insurance		96,324		92,215		22,396			13,653			13,585
Total Non-interest Income		1,400,071		932,273		733,665			(284,723	)		1,164,473

Non-Interest Expenses
Officer and employee compensation
and benefits		2,711,906		2,932,994		2,824,480			3,151,302			2,985,202
Occupancy expense		288,213		275,776		269,963			277,941			277,968
Equipment and depreciation expense		277,717		185,521		172,048			166,369			184,298
Insurance expense		77,984		77,984		78,345			78,251			200,437
Professional fees		243,880		323,358		478,838			628,583			369,089
Data and item processing		187,073		252,547		312,108			365,946			294,419
Business development		124,276		35,269		57,289			47,320			70,108
Franchise taxes		98,717		141,887		141,886			141,886			138,310
Mortgage fees and settlements		198,771		131,881		95,353			137,423			140,155
Other operating expense		185,124		158,926		179,851			245,488			199,813

Total Non-interest Expenses		4,393,661		4,516,143		4,610,161			5,240,510			4,859,799
Income before Income Taxes		629,844		524,742		3,631			(1,059,135	)		814,497

Income Tax Expense		120,769		8,756		(11,605	)		(226,718	)		114,300

Net Income	$	509,075	$	515,986	$	15,235		$	(832,417	)	$	700,197
Earnings per Common Share - Basic	$	0.07	$	0.07	$	0.00		$	(0.12	)	$	0.11
Earnings per Common Share - Diluted	$	0.07	$	0.07	$	0.00		$	(0.12	)	$	0.10
Weighted-Average Common Shares
Outstanding - Basic		7,114,190		7,097,635		7,085,636			6,873,123			6,629,749
Weighted-Average Common Shares
Outstanding - Diluted		7,177,984		7,173,656		7,207,759			6,873,123			6,856,291

Average Balances, Income and Expenses, Yields and Rates
(Unaudited)


	Three Months Ended								Three Months Ended
	June 30, 2019								March 31, 2019
	Average Balance			Income/Expense		Yield			Average Balance			Income/Expense		Yield
Assets
Cash	$	19,212,889		$	94,979		1.98	%	$	20,706,435		$	125,328		2.45	%

Investments (Tax Exempt)	$	4,380,278		$	38,468				$	4,643,552		$	43,118
Investments (Taxable)	$	51,397,468		$	350,962				$	49,309,238		$	332,954
Total Investments	$	55,777,746		$	389,430		2.80	%	$	53,952,790		$	376,072		2.83	%

Loans (Tax Exempt)	$	4,618,618		$	61,329				$	618,161		$	12,184
Loans (Taxable)	$	385,967,635		$	4,973,795				$	388,736,646		$	5,195,092
Total Loans	$	390,586,253		$	5,035,124		5.17	%	$	389,354,807		$	5,207,276		5.42	%

Earning Assets	$	465,576,888		$	5,519,533		4.76	%	$	464,014,032		$	5,708,675		4.99	%



Assets	$	483,716,025							$	482,503,597

Liabilities
Interest Checking	$	7,006,451		$	9,307		0.53	%	$	6,933,095		$	9,165		0.54	%
Money Market	$	108,817,738		$	386,793		1.43	%	$	116,599,595		$	395,239		1.37	%
Savings	$	2,411,698		$	1,202		0.20	%	$	2,892,660		$	1,411		0.20	%
Time Deposits	$	201,531,076		$	1,209,651		2.38	%	$	199,846,160		$	1,095,504		2.22	%
Interest Bearing Deposits	$	319,766,963		$	1,606,953		2.02	%	$	326,271,510		$	1,501,319		1.87	%

FHLB Borrowings	$	21,830,769		$	120,696		2.22	%	$	17,131,746		$	87,131		2.06	%

Interest Bearing Liabilities	$	341,597,732		$	1,727,649		2.03	%	$	343,403,256		$	1,588,450		1.88	%

Non Interest Bearing Deposits	$	76,077,226							$	74,141,543

Cost of Funds		1.66	%							1.54	%

Net Interest Margin¹				$	3,791,884		3.27	%				$	4,120,225		3.60	%
Shareholders Equity	$	60,715,800							$	59,571,345

¹ Net interest margin is calculated as fully taxable equivalent net interest income divided by average earning assets and represents the Bank's net yield on its earning assets