The Freedom Bank of Virginia Reports Record Earnings for the Third Quarter of 2021

FAIRFAX, Va. (October 29, 2021) The Freedom Bank of Virginia  (OTCQX: FDVA), (the “Bank” or “Freedom”) today announced net income of $2,890,281, or $0.39 per diluted share, for the three months ended September 30, 2021. This compares to net income of $2,626,381 or $0.36 per diluted share, for the linked quarter and net income of $2,575,370 or $0.35 per diluted share for the three months ending September 30, 2020. Net income for the first nine months of 2021 was $7,984,873 or $1.09 per diluted share compared to net income of $4,950,701 or $0.68 per diluted share for the first nine months of 2020.

Joseph J. Thomas, President and CEO, commented, "The strength of our client franchise and diversity of business lines helped drive another quarter of record earnings with 21.66% growth in pre-tax, pre-provision profit over the comparable quarter in 2020. We achieved this growth even while total fee-based revenue normalized to 26.78% of total revenue in the third quarter, down from 48.73% of total revenue during the previous year when mortgage banking volume was surging. Return on equity was 14.18% driven by continued reduction in cost of funds to 37 basis points and improvement in efficiency ratio to 59.57% in the third quarter. This strong profitability has enabled Freedom Bank to increase tangible book value per share by 14.26% over the past 12 months to $11.14. I am grateful to the entrepreneurs and small businesses that continue to select Freedom as their lead bank and proud of my teammates who are helping these clients in the ways they wish to be served, in-person or on-line."

Third Quarter 2021 Highlights include:

• Net income for the third quarter was $2,890,281 or $0.39 per diluted share compared to net income of $2,626,381 or $0.36 per diluted share in the linked quarter and net income of $2,575,370 or $0.35 per diluted share for the three months ended September 30, 2020;
• Pre-tax, pre-provision net income increased by 13.14% to $3,882,322 for the third quarter compared to pre-tax, pre-provision net income of $3,431,336 in the linked quarter and by 21.66% to $3,191,059 for the same period in 2020;
• Return on Average Assets ("ROAA") was 1.35% for the quarter ended September 30, 2021 compared to 1.24% for the linked quarter and 1.45% for the three months ended September 30, 2020. ROAA for the first nine months of 2021 was 1.29% compared to 1.06% for the same period in 2020;
• Return on Average Equity ("ROAE") was 14.18% for the three months ended September 30, 2021 compared to 13.65% for the linked quarter and 14.89% for the three months ended September 30, 2020. ROAE for the first nine months of 2021 was 13.77% compared to 9.91% for the same period in 2020;
• Total assets were $846.6 million on September 30, 2021, an increase of $79.55 million or 10.37% from total assets on December 31, 2020;
• Loans held-for-investment (excluding PPP loans) increased by $11.10 million or 2.21% during the quarter, while PPP loan balances decreased by $38.71 million on loan forgiveness and mortgage loans held for sale decreased by $2.84 million, on a decline in mortgage activity;
• Cash balances at the Federal Reserve increased by $14.17 million during the third quarter;
• Total deposits increased by $53.39 million or by 8.58% in the third quarter and increased by $127.01 million or 23.16% in the first nine months of 2021. Non-interest bearing demand deposits decreased by $10.47 million from the linked quarter to $216.39 million and represented 32.01% of total deposits on September 30, 2021;
• The net interest margin increased in the third quarter to 3.43%, higher by 5 basis points compared to the linked quarter and higher by 30 basis points compared to the same period in 2020. Excluding the additional income from forgiveness of PPP loans, the net interest margin would have been 2.93%. The increase in the net interest margin across linked quarters was primarily due to higher yields on loans and a 5 basis point reduction in funding costs. Higher cash balances during the quarter weighed on yields on earning assets and the net interest margin;
• The cost of funds was 0.37% for the third quarter, lower by 5 basis points compared to the linked quarter and lower by 36 basis points compared to the same period in 2020, as deposit and borrowing costs declined;
• Non-interest income increased by 13.68% compared to the linked quarter and decreased by 25.535 compared to the same period in 2020. The increase in linked quarters was primarily due to higher gain-on sale revenue from SBA loans, partially offset by lower mortgage revenue as higher rates caused mortgage activity to slow from the linked quarter. The decrease in non-interest income in calendar quarters was due to lower mortgage revenue stemming from a slowdown in mortgage activity in 2021 compared to the prior year;
• Non-interest expense was flat compared to the linked quarter and decreased by 20.29% compared to the same period in 2020. The decrease in non-interest expense in calendar quarters was primarily due to lower performance related costs: specifically, commissions paid to mortgage loan officers and mortgage settlement costs;
• The Efficiency Ratio was 59.57% for the quarter ended September 30, 2021, compared to 62.38% for the linked quarter and 69.22% for the same period in 2020;
• Asset quality improved with the ratio of non-performing assets to total assets at 0.10% on September 30, 2021 compared to 0.41% on December 31, 2020;
• 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 Bank recognized a $229,000 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 1.05% (or 1.17% excluding PPP loans, which carry a full faith and guarantee of the US Government) compared to 0.96% 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 10.47%, Common Equity Tier 1 ratio of 12.73%, Tier 1 Risk Based Capital ratio of 12.73% and a Total Capital ratio of 13.68%.

Pre-tax, Pre-Provision Net Income

Pre-tax, pre-provision net income increased by 13.14% to $3,882,322 for the third quarter compared to pre-tax, pre-provision net income of $3,431,336 in the linked quarter, primarily due to an increase in non-interest income from sales of SBA loans.

Pre-tax, pre-provision net income is a non-GAAP financial measure that the Bank views as an important metric to assess its performance. The following table provides a reconciliation of this measure to net income, the most directly comparable financial measure in accordance with GAAP.

Paycheck Protection Program ("PPP") Activity

In the second quarter of 2020, the Bank processed and funded 510 PPP loans (referred to as 2020 PPP loans), with balances of $106.37 million. The interest rate on these 2020 PPP loans was 1% and the term varied from two to five years. The SBA also paid processing fees which were deferred over the term of the loans. The loans were fully guaranteed and could be forgiven in whole or in part by the SBA.

In December of 2020, Congress approved a renewal of the PPP loan program with different rules and requirements for small businesses to receive loans, referred to as round two PPP loans. These 2021 PPP loans were also fully guaranteed and may be forgiven in whole or in part by the SBA. The interest rate on the loans was 1% and the term was five years. As with 2020 PPP loans, the SBA paid processing fees which are being deferred over the term of the loans. The Bank originated $53.89 million of round two PPP loans during 2021.

Beginning in January of 2021, the bank began to process loan forgiveness applications from borrowers of 2020 PPP loans and round two PPP loans. As of September 30, 2021, the SBA had forgiven 494 of these PPP loans with balances of $83.00 million, and the bank had recognized income from acceleration of processing fees of $1.76 million.

Net Interest Income

The Bank recorded net interest income of $6.99 million for the third quarter of 2021, an increase of 2.46% compared to the linked quarter, and 31.61% higher than the same period in 2020. The net interest margin in the third quarter of 2021 was 3.43%, higher by 5 basis points compared to the linked quarter and higher by 30 basis points compared to the same period in 2020. Income from PPP loan forgiveness during the third quarter was $667,746 (from $27.92 million of PPP loans forgiven by the SBA), compared to PPP loan forgiveness income of $513,543 (from $30.25 million of PPP loans forgiven by the SBA) during the second quarter of 2021. Excluding the additional income from forgiveness of PPP loans, the net interest margin in the third quarter would have been 2.93%.

The following factors contributed to the changes in net interest margin during the third quarter of 2021 compared to the linked quarter:

• Yields on average earning assets declined by 1 basis point to 3.77% compared to 3.78% in the linked quarter, as higher yields on loans and investment securities were offset by a surge in average cash balances from strong deposit growth during the quarter.
• Loan yields increased by 7 basis points to 4.55% from 4.48% in the linked quarter, while yields on investment securities increased by 1 basis points to 2.23% from 2.22% in the linked quarter.
• Cost of funds decreased by 5 basis points to 0.37%, from 0.42% in the linked quarter, on continued declines in deposit and borrowing costs.
• Excluding the additional income from PPP loan forgiveness would have reduced the net interest margin by 50 basis points.

Non-interest Income

Non-interest income was $2.61 million for the third quarter, higher by 13.68% compared to the linked quarter and lower by 48.40% compared to the same period in 2020. The higher non-interest income across linked quarters was primarily due to an increase in SBA gain-on-sale revenue, 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.

Total Revenue

Total revenue, defined as the sum of net interest income, before provision for loan losses, and non-interest income, was higher by 5.28% compared to the linked quarter, primarily due to higher net interest and non-interest income, and lower by 7.38% compared to the same period in 2020.

Non-interest Expenses

Non-interest expenses in the third quarter of 2021 were flat compared to the linked quarter and decreased by 20.29% compared to the same period in 2020. The decline in non-interest expenses in the third quarter compared to the calendar quarter was largely due to lower costs related to mortgage commissions and mortgage settlements.

The Efficiency Ratio was 59.57% for the quarter ended September 30, 2021, compared to 62.38% for the prior quarter and 69.22% for the same period in 2020.

Asset Quality

Non-accrual loans were $879,078 or 0.15% of loans held-for-investment at the end of the third quarter of 2021, compared to $879,089 or 0.15% of loans held-for-investment at the end of the linked quarter. There were no troubled debt restructurings ("TDRs") as of September 30, 2021. On September 30, 2021, 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, 2021. 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 $879,078 or 0.10% of total assets at June 30, 2021 compared to $879,089 or 0.11% of total assets, at the end of the linked quarter.

In 2020, in accordance with the spirit and provisions of the CARES Act, the Bank allowed borrowers who had been impacted by the COVID-19 pandemic to defer loan payments for six months. All of those borrowers had resumed loan payments and there were no loans on payment deferrals as of September 30, 2021.

Following an assessment of the collectability of the loans held-for-investment at the end of the third quarter, it was determined that a $229,000 provision for loan losses was necessary to account for loan growth and changes to environmental factors. The Bank booked a provision of $191,000 in the second quarter of 2021. The Bank's ALLL ratio was 1.05% of loans held-for-investment (or 1.17% of loans held-for investment excluding PPP loans) as of September 30, 2021 compared to an ALLL ratio of 0.96% at June 30, 2021 (or 1.15% of loans held-for-investment excluding PPP loans).

Total Assets

Total assets at September 30, 2021 were $846.60 million compared to $837.07 million on June 30, 2021. Changes in major asset categories during linked quarters were as follows:

• Cash balances at the Federal Reserve increased by $14.17 million
• Available for sale investment balances increased by $23.78 million
• PPP loan balances decreased by $38.71 million on loan forgiveness by the SBA
• Other loans held-for investment grew by $11.10 million
• Mortgage loans held-for-sale declined by $2.84 million

Total Liabilities

Total liabilities at September 30, 2021 were $765.15 million compared to total liabilities of $758.07 million on June 30, 2021. Total deposits were $675.50 million compared to total deposits of $622.10 million on June 30, 2021. Non-interest bearing demand deposits decreased by $10.47 million during the quarter, and comprised 32.03% of total deposits at the end of the quarter, compared to 35.19% of total deposits on December 31, 2020. Other interest bearing demand deposits increased by $69.42 million during the quarter. Federal Home Loan Bank advances declined by $5.14 million during the quarter, while PPP Liquidity Facility term advances decreased by $40.28 million, in line with PPP loan forgiveness.

Stockholders' Equity and Capital

Stockholders' equity at September 30, 2021 was $81.45 million compared to $78.99 million on June 30, 2021. Additional paid-in capital was $59.56 million on September 30, 2021 compared to $59.46 million on June 30, 2021. Accumulated Other Comprehensive Income ("AOCI"), which generally comprises unrealized gains and losses on available-for-sale securities and derivative positions, decreased by $530,890 on net unrealized losses during the third quarter of 2021. Total shares issued and outstanding were 7,312,565 on September 30, 2021 compared to 7,305,581 shares on June 30, 2021. The tangible book value of the Bank's common stock at September 30, 2021 was $11.14 per share compared to $10.81 per share on June 30, 2021 and $9.75 per share on September 30, 2020.

As of September 30, 2021 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, 2021 and June 30, 2021 were as follows:

Bank Holding Company

The Bank has received all required regulatory approvals to form a new holding company that will be named Freedom Financial Holdings, Inc. The Board of Directors believes that forming a holding company now provides more efficient access to capital markets if the need arises, creates flexibility in the overall capital management for our organization, and broadens the nature of non-bank activities that can be conducted.

When the reorganization is completed, current shareholders of the Bank would become shareholders of the newly-formed bank holding company and current shareholders will have the same rights and ownership percentage in the new holding company as they presently have in the bank.

The holding company formation will not impact the Bank's operations; the Bank will continue to provide its full range of financial services comprised of retail banking, commercial banking, and mortgage products. The Bank's headquarters will remain in Fairfax, VA as will the newly-formed holding company.

About Freedom Bank

Freedom Bank is a community-oriented bank with locations in Fairfax, Reston, Chantilly, Vienna, and Manassas, 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; general economic and financial market conditions, in the United States generally and particularly in the markets in which the Bank operates and which its loans are concentrated, including the effects of declines in real estate values, an increase in unemployment levels and slowdowns in economic growth, including as a result of COVID-19; 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, 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 Bank's borrowers to satisfy their obligations to the Bank, on the value of collateral securing loans, on the demand for the Bank's loans or its other products and services, on incidents of cyberattack and fraud, on the Bank's liquidity or capital positions, on risks posed by reliance on third-party service providers, on other aspects of the Bank's business operations and on financial markets and economic growth. 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.