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

FAIRFAX, Va. (October 30, 2019) – The Freedom Bank of Virginia (OTCQX: FDVA), (the “Bank” or “Freedom”) today announced net income of $932,348, or $0.13 per diluted share, for the quarter ended September 30, 2019.

Joseph J. Thomas, President and CEO, commented “Freedom is beginning to demonstrate the rebranding of our innovative bank, the resolve of our committed colleagues and the respect of our valued clients, as evidenced in the 83% increase in our third quarter net income compared to the prior quarter and the improvement in the quarterly ROAA to 0.75%. This has been driven by 16.8% annualized growth in loans in the third quarter, an increase in the net Interest margin to 3.51%, a 24 basis point increase over the second quarter, and a 31.1% increase in non-interest income in the third quarter compared to the prior quarter due to strong mortgage revenue. We have also remained vigilant on expense management as our efficiency ratio improved to 81.4% in the quarter and through the first nine months of 2019 compared to the same period in 2018, we have shed $902 thousand in non-interest expenses. Despite the market head winds and intense competitive conditions, our strategy is gaining traction as we crested $500 million in total assets at the end of the third quarter”

Third Quarter 2019 Highlights include:

• Net income for the quarter was $932,348 or $0.13 per diluted share compared to $509,075 or $0.07 per diluted share for the second quarter of 2019, and a loss of $832,409 or a loss of $0.12 per diluted share, for the quarter ended September 30, 2018. Net income for the nine months ended September 30, 2019 was $1,957,409 or $0.27 per diluted share compared to $176,027 or $0.03 per diluted share for the nine months ended September 30, 2018;
• Return on Average Assets (“ROAA”) was 0.75% for the quarter ended September 30, 2019 compared to 0.42% for the second quarter of 2019 and -0.64% for the quarter ended September 30, 2018. ROAA was 0.54% for the nine months ended September 30, 2019 compared to 0.05% for the nine months ended September 30, 2018;
• Return on Average Equity (“ROAE”) was 5.96% for the quarter ended September 30, 2019 compared to 3.36% for the second quarter of 2019 and -5.74% for the quarter ended September 30, 2018. ROAE was 4.30% for the nine months ended September 30, 2019 compared to 0.42% for the nine months ended September 30, 2018;
• Total assets were $507.4 million on September 30, 2019, higher by $28.57 million or by 5.97% compared to December 31, 2018;
• Total loans grew by $16.99 million or by 4.21% during the quarter. Loans held-for-investment increased by $11.75 million or by 3.02%, while loans held-for-sale increased by $5.24 million or by 37.21% in the third quarter;
• Available-for-sale Securities decreased by $2.01 million or by 4.28% during the quarter;
• Total deposits decreased by $1.76 million or by 0.44% in the third quarter;
• Non-interest bearing demand deposits decreased slightly by $833,469 during the quarter to $80.92 million, and comprised 20.40% of total deposits at September 30, 2019;
• Net interest income increased by 11.58% during the quarter on strong loan growth and an expansion in net interest margin;
• The net interest margin expanded by 24 basis points to 3.51% compared to the previous quarter, on higher loan yields and a reduction in funding costs;
• Non-interest income was strong and increased by 31.14% compared to the previous quarter, primarily due to higher revenue from the sale of mortgage loans during the third quarter, on an increase in the volume of closed loans;
• Expense control remained strong during the quarter and for the first nine months of 2019. Non-interest expenses increased by 11.96% compared to the previous quarter, primarily due to commissions paid to mortgage loan officers and expenses related to mortgage closings, and decreased by 6.13% compared to the same period in 2018 on lower compensation costs and professional fees. Non-interest expenses for the nine months ended September 30, 2019 were lower by $902,171 or by 6.12% compared to non-interest expenses for the same period in 2018;
• The Efficiency Ratio was 81.39% for the quarter ended September 30, 2019 compared to 84.97% for the previous quarter and 125.33% for the same period in 2018;
• The Bank recognized a provision for loan losses of $47,000 during the third quarter. The allowance for loan and lease losses (“ALLL”) was 1.12% of loans held-for-investment at September 30, 2019 compared to 1.16% of loans held-for investment at December 31, 2018;
• Asset quality remains strong with the ratio of non-performing assets to total assets at 0.55% as of September 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 15.84%, Tier 1 Risk Based Capital ratio of 14.79%, Common Equity Tier 1 ratio of 14.79% and Tier 1 Leverage ratio of 12.80% at September 30, 2019.
• 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 $4.21 million for the third quarter of 2019, an increase of 11.58% compared to the previous quarter and lower by 5.79% compared to the same period in 2018. The net interest margin in the third quarter of 2019 was 3.51%, higher by 24 basis points compared to the previous quarter, and lower by 3 basis points compared to the same period in 2018.

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

• Yields on average earning assets increased by 22 basis points to 4.98% compared to 4.76% in the previous quarter, primarily due to an increase in loan yields during the third quarter, stemming from loan growth and recognition of default interest related to a loan recovery during the quarter. The additional yield related to the loan recovery was approximately 10 basis points.
• Loan yields increased by 19 basis points to 5.36% from 5.17% in the previous quarter, while yields on investment securities decreased by 1 basis point to 2.79%, from 2.80% in the previous quarter.
• Cost of funds decreased by 2 basis points to 1.64%, from 1.66% in the previous quarter, primarily due to lower costs related to borrowings and a reduction in higher cost money market deposit balances.

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

• Yields on average earning assets increased by 27 basis points to 4.98% compared to 4.71% in the quarter ended September 30, 2018.
• Loan yields increased by 16 basis points to 5.36% from 5.20% in the quarter ended September 30, 2018, while yields on investment securities increased by 5 basis points to 2.79%, from 2.74% in the quarter ended September 30, 2018.
• Cost of funds increased by 33 basis points to 1.64%, from 1.31% in the quarter ended September 30, 2018, primarily due to higher costs related to time deposits.

Non-interest Income

Non-interest income was $1.84 million for the third quarter, higher by 31.14% compared to the previous quarter. Non-interest income in the third quarter of 2018 was a loss of $284,723, primarily due to extraordinary pre-tax losses of $1.2 million from the sale of debt securities during the quarter. If those losses were to be excluded, non-interest income for the third quarter of 2018 would have been $896,385. The principal contributors to the increase in non-interest income was higher gain-on-sale revenue from mortgage loans.

• Total revenue from the gain on sale of mortgage loans in the third quarter of 2019 increased by 45.75% compared to the previous quarter, and by 101.12% 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 third quarter of 2019.

Non-interest Expenses

Non-interest expenses increased by 11.96% compared to the previous quarter and decreased by 6.13% compared to the same period in 2018. Non-interest expenses decreased by 6.12% for the first nine months of 2019 compared to the same period in 2018.

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

• Compensation costs increased by 12.99% compared to the previous quarter, primarily due to an increase in commissions paid to mortgage loan officers on the higher volume of closed loans and an increase in incentive accruals. Excluding commissions paid to mortgage loan officers, compensation costs increased by 6.4% compared to the previous quarter. Compensation costs decreased by 2.76% compared to the same period in 2018.
• Professional fees were higher by 22.17% compared to the second quarter of 2019, primarily due to contract underwriting fees incurred during the quarter and lower by 51.14% compared to the same period in 2018.
• Insurance expense was reduced due to credits provided by the FDIC on deposit insurance assessments to small banks(those with total consolidated assets of less than $10 billion). The assessment regulations provide that after the reserve ratio for the insurance fund reaches 1.38% (and provided that it remains at least 1.38%), the FDIC will automatically apply small bank credits to reduce small banks’ regular deposit insurance assessments up to the full amount of their assessments or the full amount of their credits, whichever is less. The reserve ratio reached 1.40 on June 30, 2019. Therefore, credits were first applied on the September 30, 2019 invoice. Credits will be applied until exhausted.

Income Taxes

Income tax expense was $145,115 in the third quarter of 2019, equivalent to an effective tax rate of 13.47% compared to a tax benefit of $226,718 for the same period in 2018.

Asset Quality

Non-accrual loans were $2.18 million or 0.53% of total loans at the end of the third quarter of 2019, compared to $3.05 million or 0.76% of total loans at the end of the prior quarter. As of both September 30, 2019 and June 30, 2019, there were no troubled debt restructurings (“TDRs”) not on nonaccrual. On September 30, 2019 there were $598,863 of loans that were 90 days or more past due and not on no-accrual, equivalent to 0.14% of total loans, compared to $148,321 of loans that were 90 days or more past due and not on non-accrual, equivalent to 0.04% of total loans on June 30, 2019. Additionally, there was no other real estate owned (“OREO”) on the balance sheet on September 30, 2019 or June 30, 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 $2.78 million or 0.55% of total assets at September 30, 2019 compared to $3.19 million or 0.65% of total assets, at the end of the previous quarter.

The Bank recognized a provision for loan and lease losses of $47,000 during the third quarter, compared to a provision of $147,500 in the prior quarter. The Bank’s ALLL was 1.12% of loans held-for-investment at September 30, 2019, compared to 1.14% of loans held-for-investment at June 30, 2019.

Total Assets

Total assets at September 30, 2019 were $507.39 million compared to $489.91 million on June 30, 2019. Changes in major asset categories during linked quarters were as follows:

• Cash balances and deposits with other banks decreased by $2.34 million during the quarter.
• The available-for-sale securities portfolio decreased by $2.01 million compared to June 30, 2019.
• Loans held-for-investment increased by $11.75 million during the quarter.
• Loans held-for-sale increased by $5.24 million during the quarter.

Total Liabilities

Total liabilities at September 30, 2019 were $444.20 million, compared to total liabilities of $428.66 million on June 30, 2019. Total deposits were $396.65 million on September 30, 2019 compared to total deposits of $398.41 million on June 30, 2019. On a linked quarter basis, interest bearing demand deposits declined by $2.00 million, with the bulk of the decline occurring in higher cost money market balances. Non-interest bearing demand deposits decreased slightly during the quarter by $833,469 on seasonal activity to $80.92 million, but comprised 20.40% of total deposits at the end of the quarter, compared to 16.72% of total deposits on December 31, 2018. Federal Home Loan Bank advances increased by $17.01 million during the quarter, as the bank took advantage of the decline in wholesale borrowing rates to supplement liquidity and fund the strong loan growth during the quarter.

Stockholders’ Equity and Capital

Stockholders’ equity at September 30, 2019 was $63.19 million compared to $61.25 million on June 30, 2019. Additional paid in capital at September 30, 2019 was $58.45 million compared to $57.66 million on June 30, 2019. Accumulated Other Comprehensive Income (“AOCI”), which generally comprises unrealized gains and losses on available-for-sale securities on the balance sheet, increased by $205,339 on lower unrealized losses during the quarter and has increased by $1.08 million since December 31, 2018. Total shares issued and outstanding were 7,211,046 on September 30, 2019 compared to 6,981,602 on December 31, 2018. The book value of the Bank’s common stock at September 30, 2019 was $8.76 per share compared to $8.47 per share on December 31, 2018.

As of September 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 September 30, 2019 and December 31, 2018 were as follows:

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.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, 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. Some of the financial tables in this document reflect classifications to accounts to improve consistency in financial reporting.

THE FREEDOM BANK OF VIRGINIA
CONSOLIDATED BALANCE SHEETS

THE FREEDOM BANK OF VIRGINIA
CONSOLIDATED STATEMENTS OF OPERATIONS

THE FREEDOM BANK OF VIRGINIA
CONSOLIDATED STATEMENTS OF OPERATIONS

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

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

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

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

¹Net 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

Contact:

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