The Freedom Bank of Virginia Announces Earnings for the Fourth Quarter of 2018

The Freedom Bank of Virginia (OTCQX: FDVA), (the “Bank” or “Freedom”), today reported net income of $15,251, equivalent to $0.00 per basic share and $0.00 per diluted share, for the fourth quarter of 2018, compared to a net loss of $832,409, equivalent to a net loss of $0.12 per basic share and a net loss of $0.12 per diluted share for the third quarter of 2018. For the full year 2018, the Bank reported net income of $191,278, equivalent to $0.03 per basic share and $0.03 per diluted share, compared to net income of $2.69 million, equivalent to $0.41 per basic share and $0.39 per diluted share for the full year 2017.

Joseph J. Thomas, President and CEO, remarked, “Our new management team completed a bank-wide reorganization and balance sheet repositioning with a view towards improving financial results, mitigating risk, and growing the value of the Bank. We reduced interest rate risk by restructuring the investment portfolio and selling low-yielding, long duration municipal bonds. The Bank deployed excess liquidity into reducing higher cost non-core deposit concentrations and wholesale borrowings, as well as funding tax-advantaged bank owned life insurance. We lowered compensation costs through workforce restructuring and invested in digital technologies and management information systems through changes in vendor contracts. The severance expenses and contract terminations are expected to be non-recurring charges. The Bank recognized additional loan loss provision of $406,000 in the fourth quarter of 2018 following a rigorous and independent review of the entire loan portfolio. Management believes that the loan loss reserves now appropriately reflect the inherent risk of the loan book.”

Mr. Thomas continued, “While completing these difficult restructuring actions, the Bank’s book value per share at December 31, 2018 did increase modestly to $8.47 from $8.46 at December 31, 2017 and our balance sheet was strengthened with total capital ratio of 15.85% and allowance for loan and lease losses at 1.15% of total loans. More importantly, we believe that the Bank is well positioned for sustained growth in profitability in 2019 and beyond. The investments made this year in people and technology are also central to the board and management’s strategic plan to grow long term shareholder value with our new brand promise, “Experience Innovation, Bank with Freedom,” by deploying experienced bankers in targeted industry verticals, a network of regional sales offices, and innovative digital technologies to make banking functional for our clients in the way that they wish to be served.”

Highlights of the Fourth Quarter of 2018:

• Net income of $15,251 for the fourth quarter, equivalent to $0.00 per basic share and $0.00 per diluted share, compared to a net loss of $832,409, equivalent to a net loss of $0.12 per basic share and a net loss of $0.12 per diluted share for the linked third quarter of 2018. For the full year 2018, the Bank reported net income of $191,278, equivalent to $0.03 per basic share and $0.03 per diluted share, compared to net income of $2.69 million, equivalent to $0.41 per basic share and $0.39 per diluted share for the full year 2017;
• Total assets were $478.81 million at December 31, 2018, a decrease of $39.29 million or 7.58% from September 30, 2018 and compared to $533.12 million in total assets on December 31, 2017;
• Loans receivable declined by $10.65 million or by 2.63% during the fourth quarter;
• The Bank purchased $10 million of tax advantaged assets in the form of bank owned life insurance (“BOLI”) during the fourth quarter of 2018;
• Total deposits decreased by $38.22 million during the quarter or by 8.71% to $400.73 million at December 31, 2018. The primary reasons for the reduction in deposits was runoff in money market balances and maturing brokered deposits;
• Non-interest expense decreased by $630,350 or by 12.03% during the quarter, primarily due to lower compensation costs and a reduction in professional fees;
• The Bank recognized a loan loss provision of $406,000 during the quarter, following an extensive review of its loan portfolio. As a result, the Bank’s allowance for loan and lease losses (“ALLL”) increased to $4.57 million or 1.15% of loans receivable at December 31, 2018, compared to $4.30 million or 1.05% of loans receivable at September 30, 2018 and $4.56 million or 1.12% of loans receivable as of December 31, 2017;
• Asset quality remains strong with the ratio of non-performing assets to total assets at 0.71% as of December 31, 2018, compared to a ratio of 1.39% as of September 30, 2018; and,
• Capital ratios were strong during the fourth quarter, and above regulatory minimums for well-capitalized banks, with increases in the Leverage ratio, Common Equity Tier 1 Capital ratio, the Tier 1 Capital ratio (based on risk weighted assets), and the Total Capital ratio, compared to September 30, 2018.

Total Revenue

Lower balances of earning assets during the fourth quarter caused interest income to decline to $5.81 million compared to $5.95 million in the third quarter of 2018. Lower deposit balances, resulting from runoff in money market balances and a reduction in brokered deposits were partially offset by higher rates paid on time deposits, which resulted in an increase in interest expense during the quarter to $1.54 million compared to $1.49 million during the prior quarter. Net interest income (before a provision for loan losses) was $4.27 million during the fourth quarter compared to $4.45 million in the prior quarter.

Non-interest income increased during the quarter to $752,811, compared to a loss of $274,083 in the prior quarter, primarily due to losses recognized on the sale of municipal bonds during the third quarter. If the losses from the sale of bonds in the third quarter were excluded, non-interest income for the fourth quarter would have been lower by $154,214 compared to the prior quarter, primarily due to lower mortgage revenue during the fourth quarter.

Total revenue (comprising net interest income and non-interest income) was $5.02 million for the fourth quarter compared to $4.18 million for the prior quarter. Excluding the losses from the sale of municipal bonds in the third quarter of 2018 would have resulted in total revenue of $5.36 million for the third quarter.

Non-interest Expense

Non-interest expense for the fourth quarter of 2018 was $4.61 million, lower by $630,350 or 12.03% compared to the prior quarter. The decrease in non-interest expense during the fourth quarter was primarily due to lower compensation costs and a reduction in professional fees.

Asset Quality

Non-accrual loans were $2.84 million at the end of the fourth quarter of 2018, compared to $4.38 million at the end of the prior quarter. As of December 31, 2018, there were three troubled debt restructurings (“TDRs”) with a balance of $535,660, or 0.14% of loans receivable, compared to $79,869 or 0.02% of loans receivable on September 30, 2018. On December 31, 2018, there were no loans that were 90 days or more past due and not on non-accrual. On September 30, 2018, one loan with a balance of $1.56 million was 90 days or more past due and not on non-accrual, representing 0.39% of loans receivable. Additionally, there was no other real estate owned (“OREO”) on the balance sheet on December 31, 2018 compared to OREO balances of $1.17 million as of September 30, 2018. 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 $3.37 million or 0.71% of total assets, compared to $7.19 million or 1.39% of total assets at September 30, 2018.

The Bank recognized a provision of $406,000 during the fourth quarter of 2018, following a review of its loan portfolio. As a result, the Bank’s allowance for loan and lease losses (“ALLL”) increased to $4.57 million or 1.15% of loans receivable at December 31, 2018, compared to $4.30 million or 1.05% of loans receivable at September 30, 2018 and $4.56 million or 1.12% of loans receivable as of December 31, 2017.

Total Assets

Total assets at December 31, 2018 were $478.81 million compared to $518.11 million on September 30, 2018, a decrease of $39.29 million during the linked quarter, and $533.12 million on December 31, 2017. Changes in major asset categories during linked quarters were as follows:

Cash and due from banks, Federal Funds sold and interest bearing balances with other banks decreased by $33.70 million compared to September 30, 2018, as the Bank deployed excess liquidity from the prior quarter to decrease deposit concentrations in money market balances, reduce wholesale borrowings and fund additional Bank Owned Life Insurance (“BOLI”). Securities balances decreased by $1.33 million and loans receivable decreased by $10.65 million during the quarter, while loans held-for-sale balances were lower by $1.91 million at the end of the fourth quarter compared to the quarter ended September 30, 2018. The Bank purchased $10 million of BOLI during the fourth quarter of 2018.

Total Liabilities

Total liabilities at December 31, 2018 were $419.70 million, compared to total liabilities of $459.99 million on September 30, 2018 and total liabilities of $477.83 million on December 31, 2017. Total deposits were $400.73 million on December 31, 2018, lower by $38.22 million compared to the quarter ended September 30, 2018, and compared to $465.98 million in deposits on December 31, 2017. On a linked quarter basis, interest bearing demand deposits declined by $30.17 million, with the bulk of the decline occurring in money market balances, while time deposits decreased by $4.56 million following a reduction in brokered deposits during the quarter. Federal Home Loan Bank advances declined by $2.00 million during the quarter, as the Bank used excess liquidity to reduce borrowings.

Stockholders’ Equity and Capital

Stockholders’ equity at December 31, 2018 was $59.11 million compared to $58.11 million on September 30, 2018, an increase of $1.00 million during the fourth quarter, and compared to stockholders equity of $55.29 million on December 31, 2017. Additional paid in capital at December 31, 2018 was $57.42 million compared to $56.94 million on September 30, 2018, representing an increase of $500,000 during the quarter, and compared to additional paid in capital of $53.24 million on December 31, 2017. Accumulated Other Comprehensive Income (“AOCI”), which generally comprises unrealized gains and losses on available-for-sale securities on the balance sheet, increased by $506,340 during the fourth quarter on lower unrealized losses during the quarter. Total shares issued and outstanding were 6,981,602 on December 31, 2018 compared to 6,950,165 at the end of the prior quarter. The book value of the Bank’s common stock at December 31, 2018 was $8.47 per share compared to $8.36 per share on September 30, 2018.

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

						December 31, 2018					September 30, 2018
Total Capital Ratio						15.85%					15.50%
Tier 1 Capital Ratio						14.73%					14.46%
Common Equity
Tier 1 Capital Ratio						14.73%					14.46%
Leverage Ratio						12.15%					11.66%

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. We caution readers that the list of factors above is not exclusive. The forward-looking statements are made as of the date of this release, and we 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.

THE FREEDOM BANK OF VIRGINIA
CONSOLIDATED BALANCE SHEETS
		(Unaudited)				(Unaudited)				(Audited)
		December 31, 2018				September 30, 2018				December 31, 2017
ASSETS
Cash and due from banks		$	1,270,559			$	1,227,699			$	1,164,368
Federal funds sold			-				-				127,000
Interest bearing deposits with banks			14,376,684				48,124,490				33,936,870
Securities available for sale			48,204,339				49,535,180				61,989,669
Securities held to maturity			-				-				14,869,181
Restricted stock investments			3,076,000				3,006,950				2,533,500
Loans held for sale			4,415,520				6,326,703				7,772,501
Loans receivable			394,080,457				404,729,545				407,332,772
Allowance for loan and lease losses			(4,572,392	)			(4,299,345	)			(4,562,370	)
Net loans			389,508,065				400,430,200				402,770,402
Premises and equipment, net			1,748,935				1,807,802				1,595,575
Accrued interest and other receivables			1,229,534				1,482,032				1,643,427
Other real estate owned			-				1,167,785				-
Deferred tax asset			822,110				822,110				974,614
Bank owned life insurance			12,401,317				2,378,920				2,338,146
Other assets			1,761,924				1,798,643				1,407,079
Total Assets		$	478,814,987			$	518,108,514			$	533,122,332
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits:
Non-interest bearing		$	67,012,857			$	71,057,617			$	69,942,247
Interest bearing			128,403,357				158,573,916				184,271,412
Savings deposits			3,023,239				2,472,521				2,273,760
Time deposits			202,292,311				206,848,346				209,493,201
Total Deposits			400,731,764				438,952,400				465,980,620
Federal Home Loan Bank advances			17,142,857				19,142,857				10,428,571
Other accrued expenses			1,607,492				1,610,068				1,256,202
Accrued interest payable			218,537				288,120				162,749
Total Liabilities			419,700,650				459,993,445				477,828,142
Stockholders' Equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized;
0 shares issued and outstanding, 2018 and 2017
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			63,086				62,772				58,668
6,308,602, 6,277,165 and 5,866,765 shares issued and
outstanding at December 31, 2018, September 30, 2018
and December 31, 2017 respectively.
Non-Voting Common Stock			6,730				6,730				6,601
673,000, 673,000 and 627,707 shares issued and
outstanding at December 31, 2018, September 30, 2018
and December 31, 2017 respectively.
Additional paid-in capital			57,416,068				56,938,702				53,241,342
Accumulated other comprehensive income			(1,124,101	)			(1,630,441	)			(573,698	)
Retained earnings			2,752,554				2,737,306				2,561,277
Total Stockholders' Equity			59,114,337				58,115,069				55,294,190
Total Liabilities and Stockholders' Equity		$	478,814,987			$	518,108,514			$	533,122,332

THE FREEDOM BANK OF VIRGINIA
CONSOLIDATED STATEMENTS OF OPERATIONS
		(Unaudited)				(Unaudited)				(Unaudited)				(Audited)
		For the Quarter Ended				For the Quarter Ended				For the Twelve Months Ended				For the Twelve Months Ended
		December 31, 2018				September 30, 2018				December 31, 2018				December 31, 2017
Interest Income
Interest and fees on loans		$	5,301,122			$	5,390,476			$	21,016,737			$	21,117,267
Interest on investment securities			512,395				558,583				2,224,165				1,993,655
Interest on Federal funds sold			-				-				466				19,922
Total Interest Income			5,813,517				5,949,059				23,241,368				23,130,844
Interest Expense
Interest on deposits			1,457,064				1,389,640				5,352,256				4,831,359
Interest on borrowed funds			89,460				103,954				322,352				172,206
Total Interest Expense			1,546,524				1,493,594				5,674,608				5,003,565
Net Interest Income			4,266,993				4,455,465				17,566,760				18,127,279
Provision for Loan Losses		$	(406,000	)			-			$	(406,000	)			(30,000	)
Net Interest Income after
Provision for Loan Losses			3,860,993				4,455,465				17,160,760				18,097,279
Non-interest Income
Gain on sale of mortgage loans			668,073				846,654				3,168,195				4,314,314
Service charges and other income			62,342				46,719				279,132				269,071
Losses on sale of securities			-				(1,181,108	)			(1,181,108	)		-
Increase in cash surrender value of bank-owned life insurance			22,396				13,652				63,171				56,420
Total Non-Interest Income			752,811				(274,083	)			2,329,390				4,639,805
Non-interest Expenses
Employee compensation and benefits			2,824,477				3,151,301				11,654,250				10,916,694
Occupancy expense			269,963				277,941				1,098,985				1,002,240
Equipment and depreciation expense			172,048				166,368				664,284				556,024
Insurance expense			78,345				78,535				438,813				363,673
Professional fees			478,839				628,584				2,108,033				1,682,060
Data and item processing			312,108				365,946				1,249,830				930,667
Business development			57,289				47,320				245,294				225,535
Franchise tax			141,886				141,887				553,238				492,508
Mortgage fees and settlements			95,353				137,423				498,411				711,797
Other operating expenses			179,851				245,204				830,157				770,775
Total Non-interest Expenses			4,610,159				5,240,509				19,341,295				17,651,973
Income before Income Taxes			3,645				(1,059,127	)			148,855				5,085,111
Income Tax Expense			(11,606	)			(226,718	)			(42,423	)			2,389,792
Net Income		$	15,251			$	(832,409	)		$	191,278			$	2,695,319
Earnings Per Common Share - Basic		$	0.00			$	(0.12	)		$	0.03			$	0.41
Earnings Per Common Share - Diluted		$	0.00			$	(0.12	)		$	0.03			$	0.39
Weighted Average Common Shares
Outstanding - Basic			7,085,636				6,873,123				6,751,251				6,518,614
Weighted Average Common Shares
Outstanding - Diluted			7,207,759				6,873,123				6,948,844				6,833,739

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