The Freedom Bank of Virginia Announces Earnings for the Fourth Quarter and Full Year 2020

FAIRFAX, VA / ACCESSWIRE / January 29, 2021 / The Freedom Bank of Virginia FDVA, (the "Bank" or "Freedom") today announced net income of $2,413,775, or $0.33 per diluted share, for the three months ended December 31, 2020. This compares to net income of $2,575,370 or $0.35 per diluted share, for the prior quarter and net income of $747,808 or $0.10 per diluted share for the three months ending December 31, 2019. The Bank reported net income of $7,364,476 or $1.01 per diluted share for the full year 2020 compared to net income of $2,705,217 or $0.37 per diluted share for the full year 2019.

Joseph J. Thomas, President and CEO, commented, "I am very proud of my colleagues at Freedom who delivered exceptional outcomes for clients in 2020 during the challenging national health and economic environment crisis and in the process enabled our company to produce record financial results. The Bank increased full year 2020 net income by 172.23% to $7.36 million, increased residential mortgage originations by 171.46% to $471.8 million, increased total assets by 53.29% to $767.04 million, and grew tangible book value per share by 13.88% to $10.09 at December 31, 2020. The results of our two-year effort to implement a new strategic plan were on full display this year with a return on average assets of 1.12% and return on average equity of 10.84% that were achieved while we also increased loss reserves by $1.5 million and maintained strong capital levels, represented by a Common Equity Tier 1 Capital ratio of 13.21% at December 31, 2020."

Fourth Quarter and Full Year 2020 Highlights include:

• Net income for the fourth quarter was $2,413,775 or $0.33 per diluted share compared to net income of $2,575,370 or $0.35 per diluted share in the prior quarter and net income of $747,808 or $0.10 per diluted share for the three months ended December 31, 2019. The increase in net income in calendar quarters was primarily due to an increase in non-interest income in 2020, from higher mortgage revenues, swap fees and BOLI income, as well as an increase in earning assets from the prior year;
• Net income for the full year 2020 increased by 172.23% compared to the full year 2019. Net income was $7,364,476 or $1.01 per diluted shares, compared to net income of $2,705,217 or $0.37 per diluted share for the same period in 2019. The increase in net income in 2020 was driven by higher non-interest income as well as an increase in earning assets;
• Total revenue, defined as the sum of net interest income, before provision for loan losses, and non-interest income, was flat compared to the prior quarter, and higher by 94.09% compared to the same period in 2019. Total revenue was $34.88 million for the full year 2020 compared to $21.53 million for the full year 2019, representing a 62.01% increase compared to the prior year;
• Return on Average Assets ("ROAA") was 1.28% for the quarter ended December 31, 2020 compared to 1.45% for the prior quarter and 0.59% for the three months ended December 31, 2019. ROAA was 1.12% for the full year 2020 compared to 0.55% for the prior year;
• Return on Average Equity ("ROAE") was 13.43% for the three months ended December 31, 2020 compared to 14.89% for the prior quarter and 4.66% for the three months ended December 31, 2019. ROAE was 10.84% for the full year 2020 compared to 4.40% for the full year 2019;
• Total assets were $767.04 million on December 31, 2020, an increase of $266.65 million from December 31, 2019;
• Total loans increased by $23.33 million or by 4.08% during the quarter, while loans held-for-investment increased by $45.85 million or by 9.09% during the quarter. Mortgage loans held-for-sale decreased by $22.52 million while PPP loan balances decreased by $6.14 million, offset by an increase of $51.99 million in other loans held-for-investment during the quarter;
• Loans held-for-investment (excluding PPP loans) grew by 14.32% in 2020;
• Investment securities increased by $3.08 million during the fourth quarter and by $63.47 million in 2020;

• Total deposits increased by $13.62 million or by 2.55% in the fourth quarter and by $153.28 million in 2020. Non-interest bearing demand deposits increased by $16.77 million to $192.99 million and represented 35.19% of total deposits on December 31, 2020;
• The net interest margin decreased in the fourth quarter to 3.06%, lower by seven basis points compared to the previous quarter and lower by 27 basis points compared to the same period in 2019. The decrease in the net interest margin across linked quarters was primarily due to lower yields on investments, partially offset by higher loan yields and a reduction in the cost of funds. Excluding PPP loans, the net interest margin would have been higher by 2 basis points to 3.08% during the fourth quarter;
• The cost of funds was 0.63% for the fourth quarter, lower by 10 basis points compared to the previous quarter and lower by 91 basis points compared to the same period in 2019, as deposit and borrowing costs continued to decline across the board;
• Mortgage loan originations for the full year 2020 were $471.8 million compared to $173.8 million in the prior year, representing an increase of 171.46%;
• Non-interest income decreased by 6.54% compared to the previous quarter on lower mortgage revenue stemming from a seasonal decline in mortgage activity, partially offset by an increase in swap fee income during the fourth quarter. Non-interest income increased by 280.85% compared to the same period in 2019, primarily due to higher revenue from the sale of mortgage loans and an expansion in gain-on-sale margins, supplemented by an increase in swap fee income and higher income from Bank Owned Life Insurance;
• Non-interest expense decreased by 3.66% compared to the previous quarter and increased by 59.62% compared to the same period in 2019. The increase in non-interest expense in calendar quarters was primarily due to higher performance related costs: specifically, commissions paid to mortgage loan officers and mortgage settlement costs, as well as an increase in performance based incentive accruals. Excluding these costs, non-interest expense in the fourth quarter of 2020 increased by 12.26% compared to the same period in 2019;
• The Efficiency Ratio was 67.52% for the quarter ended December 31, 2020, compared to 69.22% for the prior quarter and 82.10% for the same period in 2019;
• Asset quality remained strong with the ratio of non-performing assets to total assets at 0.41% on December 31, 2020 compared to 0.49% on September 30, 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 $238,000 provision for loan losses during the fourth quarter and the ratio of the allowance for loan and lease losses to loans held-for-investment was 0.99% (or 1.21% excluding PPP loans, which carry a full faith and guarantee by the US Government) compared to 1.04% in the previous quarter (or 1.32% excluding PPP loans). The Bank recognized a provision for loan losses of $1.49 million in the full year 2020 compared to a provision of $194,500 in the full year 2019;
• Loan payment deferrals related to COVID-19 continue to decline steadily. As of December 31, 2020, 13 loans for a total of $13.92 million were on payment deferrals, all of which are scheduled to end in the first quarter of 2021. This compares to 90 loans totaling $73.07 million on payment deferral on September 30, 2020 and 96 loans or $89.35 million on payment deferrals on June 30, 2020;
• The Bank continues to be well capitalized and capital ratios continue to be strong with a Leverage ratio of 11.20%, Common Equity Tier 1 ratio of 13.21%, Tier 1 Risk Based Capital ratio of 13.21% and a Total Capital ratio of 14.21%.

Revenue

Total revenue, defined as the sum of net interest income, before provision for loan losses, and non-interest income, was flat compared to the prior quarter, and higher by 94.09% compared to the same period in 2019. Total revenue was $34.88 million for the full year 2020 compared to $21.53 million for the full year 2019, representing a 62.01% increase compared to the prior year.

Net Interest Income

The Bank recorded net interest income of $5.52 million for the fourth quarter of 2020, an increase of 3.81% compared to the previous quarter, and 36.72% higher than the same period in 2019. The net interest margin in the fourth quarter of 2020 was 3.06%, lower by seven basis points compared to the previous quarter and lower by 27 basis points compared to the same period in 2019. Excluding the impact of lower yielding PPP loans, loan yields would have been higher by 27 basis points, while the net interest margin would have been higher by two basis points to 3.08%.

The Bank's net interest margin was 3.09% for the full year 2020 compared to 3.48% for the prior year. For the full year 2020, loan yields declined by 99 basis points from the prior year, affected by lower yielding PPP loans and loan growth at lower loan yields. Excluding the impact of PPP loans, loan yields in 2020 would have been 29 basis points higher, while the net interest margin would have been higher by five basis points. Yields on investment securities increased in 2020, higher by eight basis points compared to the prior year.

The following factors contributed to the changes in net interest margin during the fourth quarter of 2020 compared to the previous quarter:

• Yields on average earning assets decreased by 17 basis points to 3.64% compared to 3.81% in the previous quarter, primarily due to lower yields on investment securities, partially offset by higher loan yields.
• Loan yields increased by 4 basis points to 4.14% from 4.10% in the previous quarter, while yields on investment securities decreased by 102 basis points to 2.30% from 3.32% in the previous quarter. The increase in loan yields was largely due to the acceleration of deferred fees resulting from the PPP loans that were forgiven in the fourth quarter. Payoff activity in residential mortgage backed securities and calls of corporate bonds were the principal driver for the decrease in investment yields.
• Cost of funds decreased by 10 basis points to 0.63%, from 0.73% in the previous quarter, as declines in deposit costs continued, primarily in the money market and time deposit categories.

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

• Loan yields decreased by 106 basis points to 4.14% from 5.20% in the fourth quarter of 2019, while yields on investment securities decreased by two basis points to 2.30%, from 2.32% in the same period in 2019.
• Cost of funds decreased by 91 basis points to 0.63%, from 1.54% in the fourth quarter of 2019, primarily due to higher non-interest bearing deposits and lower costs for borrowings and interest bearing deposits.

Non-interest Income

Non-interest income was $4.72 million for the fourth quarter, lower by 6.54% compared to the previous quarter and higher by 280.85% compared to the same period in 2019. The decline in non-interest income compared to the previous quarter was largely due to lower mortgage gain-on-sale and fee revenue, stemming from a decline in mortgage originations in the fourth quarter of 2020, partially offset by an increase in swap fee income during the fourth quarter.

An increase in mortgage loan origination activity and an expansion in gain-on-sale margins was the primary reason for the higher non-interest income in 2020, compared to the prior year, supplemented by an increase in swap fee income and higher income from Bank Owned Life Insurance. Mortgage originations for the full year 2020 were $471.8 million compared to $173.8 million in the prior year, representing an increase of 171.46%.

Non-interest Expenses

Non-interest expenses in the fourth quarter of 2020 decreased by 3.66% compared to the previous quarter and increased by 59.62% compared to the same period in 2019. The decline in non-interest expenses in the fourth quarter compared to the previous quarter was largely due to lower compensation expenses, mostly driven by lower commission expense. The increase in non-interest expenses in the fourth quarter of 2020 compared to the same period in 2019 was largely due to higher performance based costs, principally commission expense, mortgage settlement costs and an increase in performance based incentive accruals. Excluding these performance based costs, non-interest expenses in the fourth quarter of 2020 would have been 12.26% higher compared to the same period in 2019. Higher loan and deposit activity in 2020 compared to the prior year also led to increases in data processing costs and contract underwriting fees.

Additional categories of non-interest expenses that changed in the fourth quarter of 2020 were the following:

• Professional fees were higher by 52.09% in the fourth quarter of 2020 compared to the previous quarter. This was largely due to an increase in fees paid to contract underwriters.
• Data processing expenses in the fourth quarter were higher by 40.07% compared to the previous quarter, primarily due to an increase in loan and deposit activity in the fourth quarter.

The Efficiency Ratio was 67.52% for the quarter ended December 31, 2020, compared to 69.22% for the prior quarter and 82.10% for the same period in 2019.

The Efficiency ratio for the full year 2020 was 69.68% compared to 84.34% for the full year 2019.

Asset Quality

Non-accrual loans were $3.18 million or 0.57% of total loans at the end of the fourth quarter of 2020, compared to $3.69 million or 0.64% of total loans at the end of the prior quarter. There were no troubled debt restructurings ("TDRs") as of December 31, 2020. On December 31, 2020, 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 December 31, 2020. 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 $3.18 million or 0.41% of total assets at December 31, 2020 compared to $3.69 million or 0.49% of total assets, at the end of the previous quarter.

Loan payment deferrals related to COVID-19 continue to decline steadily. As of December 31, 2020, 13 loans for a total of $13.92 million were on payment deferrals, all of which are scheduled to end in the first quarter of 2021. This compares to 90 loans totaling $73.07 million on payment deferral on September 30, 2020 and 96 loans or $89.35 million on payment deferrals on June 30, 2020.

Following an assessment of the collectability of the loans held-for-investment at the end of the fourth quarter, it was determined that a $238,000 provision for loan losses was necessary. The Bank booked no provision in the third quarter of 2020. The Bank's ALLL ratio was 0.99% of loans held-for-investment (or 1.21% of loans held-for investment excluding PPP loans) as of December 31, 2020 compared to an ALLL ratio of 1.04% at September 30, 2020 (or 1.32% of loans held-for-investment excluding PPP loans).

Total Assets

Total assets at December 31, 2020 were $767.04 million compared to $751.58 million on September 30, 2020. Changes in major asset categories during linked quarters were as follows:

• Mortgage loans held-for-sale declined by $22.52 million.
• Loans held-for-investment increased by $45.85 million, including a decline in PPP loan balances of $6.14 million, driven by forgiveness by the SBA and by curtailments and an increase of $51.99 million in other loans held-for-investment.

Total Liabilities

Total liabilities at December 31, 2020 were $693.59 million compared to total liabilities of $681.05 million on September 30, 2020. Total deposits were $548.49 million compared to total deposits of $534.87 million on September 30, 2020. The primary reason for the increase in deposits compared to the prior quarter was an increase in non-interest bearing deposits. Non-interest bearing demand deposits increased by $16.77 million during the quarter, and comprised 35.19% of total deposits at the end of the quarter, compared to 32.95% of total deposits on September 30, 2020, and 20.41% of total deposits on December 31, 2019. Federal Home Loan Bank advances declined slightly during the quarter, while PPP Liquidity Facility term advances decreased as some PPP loans were forgiven in the fourth quarter and the associated advances were paid off.

Stockholders' Equity and Capital

Stockholders' equity at December 31, 2020 was $73.46 million compared to $70.53 million on September 30, 2020. Additional paid in capital was $59.22 million on December 31, 2020 compared to $58.84 million on September 30, 2020. Accumulated Other Comprehensive Income ("AOCI"), which generally comprises unrealized gains and losses on available-for-sale securities and derivative positions, increased by $127,819 on unrealized gains during the fourth quarter of 2020. Total shares issued and outstanding were 7,283,647 on December 31 30, 2020 compared to 7,233,751 shares on September 30, 2020, and 7,211,046 shares on December 31, 2019. The tangible book value of the Bank's common stock at December 31, 2020 was $10.09 per share compared to $9.75 per share on September 30, 2020 and $8.86 per share on December 31, 2019.

As of December 31, 2020 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, 2020 and December 31, 2019 were as follows:

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.