Market Overview

The Freedom Bank of Virginia Announces 2017 Earnings

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The Freedom Bank of Virginia (OTCQX:FDVA), (the "Company" or
"Freedom"), today reported net income of $2.69 million, or $0.39 per
diluted share, for the full year 2017. Excluding a one-time tax
adjustment of $603,331 related to the Tax Cuts and Jobs Act of 2017,
adjusted net income (a non-GAAP measure) for 2017 was $3.30 million, or
$0.48 per diluted share.

The Company also restated certain amounts in the December 31, 2016 and
2015 balance sheets and the 2016 statement of operations to correct
errors related to accounting for stock compensation expense, deferred
loan origination costs, interest rate lock commitments and deferred
income taxes. Please see "Restatement Summary" below for more
information.

Highlights for 2017:

  • Net income was $2.69 million, or $0.39 per diluted share for the full
    year 2017, compared to net income of $2.65 million or $0.41 per
    diluted share for the full year 2016;
  • Excluding a one-time tax adjustment of $603,331 related to the Tax
    Cuts and Jobs Act of 2017, non-GAAP adjusted net income for 2017 was
    $3.30 million, or $0.48 per diluted share;
  • Total assets were $533.1 million at December 31, 2017, an increase of
    $36.2 million or 7.3% from the previous year;
  • Available-for-sale securities increased by $32.9 million in 2017, as
    the Company increased its on-balance sheet liquidity;
  • Loans receivable were flat in 2017 compared to 2016, as payoffs offset
    new loan originations;
  • Deposits grew by $66.6 million during the year or 16.67% to $465.9
    million at December 31, 2017, with the growth occurring in demand
    deposits. Time deposits declined in 2017 as the Company made the
    decision to reduce brokered certificates of deposits by $24 million;
  • Federal Home Loan Bank advances declined by $33.3 million or 76.14% in
    2017, as the Company paid off wholesale borrowings;
  • Capital ratios were strong in 2017, and above regulatory minimums for
    well-capitalized banks, with increases in the Common Equity Tier 1
    Capital ratio, the Tier 1 Capital ratio (based on risk weighted
    assets), and the Total Capital ratio, compared to 2016.

CEO Craig Underhill said, "Freedom focused on better utilizing its
banking centers in 2017 to increase core deposits. We were pleased with
our results as transaction account balances increased by $76.7 million.
The Company used the increase in core deposits to pay down brokered
deposits and short term borrowings. Brokered CDs were reduced by $24
million and all short term borrowings were repaid in 2017.

"The Company has consistently grown average loan balances over the past
few years, with an increased concentration in commercial real estate
(CRE) loans. In 2017, the Company diversified its loan portfolio by
emphasizing other types of loans resulting in a decrease in CRE
concentration (as measured by CRE loans relative to total capital) to
229% on Dec 31, 2017 from 301% on Dec 31, 2016. We believe in the long
run, refining our model to grow a diversified loan portfolio funded with
core deposits will enhance shareholder value."

Restatement Summary

Certain amounts in the Company's December 31, 2016 and 2015 balance
sheets and in the Company's 2016 statement of operations have been
restated for the corrections of accounting errors related to interest
rate lock commitments, deferred loan origination costs, stock based
compensation and deferred income taxes related to unrealized losses on
securities available-for-sale that were transferred to held-to-maturity.
During 2017, the Company determined that it did not properly record
interest rate lock commitments related to locked mortgage loans being
held as of December 31, 2016 along with deferred loan origination costs.
The initial recording of interest rate lock commitments and deferred
loan origination costs as of January 1, 2016 increased other assets and
loans, with an offsetting increase to retained earnings. The correction
of the errors for 2016 activity related to the interest rate lock
commitments and deferred loan origination costs reduced other assets and
gain on loans held for sale and increased loans, interest and fees on
loans and officer and employee compensation. Also, during 2017, the
Company determined that several errors had been made in the calculation
of stock based compensation. Historically the Company has utilized the
Black-Scholes option pricing model to determine the fair value of stock
options. The historical calculations were comprised of mathematical
errors along with errors in the key assumptions of the model. The net
effect of the correction of these errors was an increase to additional
paid-in capital, an increase to stock based compensation and a decrease
to retained earnings. The Company also determined that at December 31,
2016 the deferred tax asset related to the aforementioned transferred
securities had not been recorded. The correction of this error increased
other assets and decreased accumulated other comprehensive loss. The
change to accumulated other comprehensive loss at December 31, 2015
resulted from the correction of the income tax rate used to measure
deferred tax assets at that date. The effects of the corrections of
these errors on the Company's prior year financial statements are
summarized below:

     
Previously Effect of
Reported Restated Restatement
Amounts Amounts Increase (Decrease)
At December 31, 2015:
Additional paid in capital $ 24,282,805 $ 24,774,323 $ 491,518
Accumulated other comprehensive loss (371,695 ) (377,412 ) (5,717 )
Retained earnings 1,442,485 1,105,662 (336,823 )
Stockholders' equity 42,580,925 42,729,903 148,978
 
At December 31, 2016:
Loans receivable $ 402,941,879 $ 403,414,060 $ 472,181
Deferred tax asset 1,891,600 2,288,271 396,671
Other assets 1,597,333 1,078,706 (518,627 )
Total assets 496,537,149 496,887,374 350,225
Other accrued expenses 1,598,948 1,598,943 (5 )
Additional paid in capital 47,958,932 48,708,431 749,499
Accumulated other comprehensive loss (548,380 ) (523,402 ) 24,978
Retained earnings 4,184,269 3,760,022 (424,247 )
Stockholders' equity 51,656,614 52,006,844 350,230
 
Year ended December 31, 2016:
Interest and fees on loans $ 19,287,266 $ 19,327,206 $ 39,940
Gain on sale of mortgage loans 4,986,961 4,982,058 (4,903 )
Officer and employee compensation 10,726,227 10,984,208 257,981
Income before income taxes 4,154,184 3,931,240 (222,944 )
Income tax expense 1,412,400 1,276,880 (135,520 )
Net income 2,741,784 2,654,360 (87,424 )
 
Earnings per common share - basic (1) $ 0.43 $ 0.42 ($0.01 )
Earnings per common share - diluted (1) 0.42 0.41 (0.01 )
 
(1) - retroactively restated for effects of the 5% stock dividend
declared in 2017
 

Total Revenue

Interest income was $23.13 million in 2017, compared to $20.51 million
in 2016, an increase of 12.8%, primarily due to higher interest income
from loans. Interest expense was $5 million in 2017, higher by $1.3
million compared to 2016, primarily due to an increase in
interest-bearing deposits in 2017 as the Company increased on-balance
sheet liquidity during the year. Net interest income (before a provision
for loan losses) was $18.13 million in 2017, higher by $1.3 million
compared to 2016, or an increase of 7.8%.

Non-interest income in 2017 was $4.64 million, compared to $5.26 million
in 2016 (as restated), a decline of 11.9%, primarily due to lower
gain-on-sale revenue from the sale of mortgage loans. Total revenue
(comprising net interest income and non-interest income) was $22.77
million in 2017, flat relative to 2016.

Non-interest Expense

Non-interest expense for 2017 was $17.65 million, higher by 3.5%
compared to 2016, primarily due to an increase in fees paid for
professional services during 2017 and higher franchise taxes.
Compensation expenses were flat during the year. Occupancy expenses
increased slightly as the Company opened a banking center in Chantilly,
Virginia, during the fourth quarter of 2017.

Asset Quality

Asset quality continued to be strong with total non-performing assets of
$666,125 or 0.12% of total assets as of December 31, 2017, compared to
$396,341 or 0.08% of total assets at December 31, 2016.

All of the non-performing loans in 2017 and 2016 were non-accrual loans.
Consequently, non-accrual loans were $666,125 or 0.16% of total loans as
of December 31, 2017, compared to $396,341 or 0.10% of total loans as of
December 31, 2016. The Company's allowance for loan and lease losses
("ALLL") was $4.56 million or 1.12% of total loans at December 31, 2017,
compared to $4.15 million or 1.02% of total loans at December 31, 2016.
The Company experienced increased loss recoveries in 2017 and flat loan
growth, which resulted in a modest $30,000 provision for loan losses in
2017, compared to a provision of $1.09 million in the prior year.

Total Assets

Total assets at December 31, 2017 were $533.1 million, compared to
$496.9 million at December 31, 2016 (as restated), an increase of $36.2
million during the year. Changes in major asset categories were as
follows:

Cash balances and deposits with other banks increased by $29.6 million
compared to December 31, 2016, and Fed Funds sold decreased by $24
million. Available-for-sale securities balances increased by $32.9
million compared to December 31, 2016, as the Company built up
on-balance sheet liquidity.

Total Liabilities

Total liabilities at December 31, 2017 were $477.8 million, an increase
of $33 million compared to December 31, 2016. Deposits grew by $66.6
million for the full year to $466 million as of December 31, 2017.
Demand deposits increased by $76.7 million, offset by declines in
savings and time deposits. The decrease in time deposits resulted from
the Company's decision to pay off maturing brokered certificates of
deposits. Federal Home Loan Bank ("FHLB") advances decreased by $33.3
million as the Company paid off wholesale borrowings.

Shareholders Equity and Capital

Shareholders equity at December 31, 2017 was $55.3 million, compared to
$52.0 million at December 31, 2016 (as restated). Additional paid in
capital at December 31, 2017 was $53.2 million compared to $48.7 million
at December 31, 2016 (as restated), primarily due to a 5% stock dividend
that was declared on May 29, 2017, which increased the average number of
common shares outstanding by 167,067. The book value of the Company's
common stock at December 31, 2017 was $8.47 per share versus $8.42 per
share at December 31, 2016.

As of December 31, 2017, all of the Company's capital ratios were well
above regulatory minimum capital ratios for well capitalized banks. The
Bank's actual capital amounts and capital ratios as of December 31, 2017
and 2016 were as follows:

         
Minimum to be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount   Ratio
December 31, 2017
Total Capital
(to Risk Weighted Assets) $ 60,370,258 14.41 % $ 33,508,352 8.00 % $ 41,885,440 10.00 %
 
Tier 1 Capital
(to Risk Weighted Assets) $ 55,807,888 13.32 % $ 25,131,264 6.00 % $ 33,508,352 8.00 %
 
Common Equity
Tier 1 Capital
(to Risk Weighted Assets) $ 55,807,888 13.32 % $ 18,848,448 4.50 % $ 27,225,536 6.50 %
 
Tier 1 Capital
(to Adjusted Average Assets) $ 55,807,888 10.19 % $ 21,916,680 4.00 % $ 27,395,850 5.00 %
 
December 31, 2016
Total Capital
(to Risk Weighted Assets) $ 56,620,327 13.33 % $ 33,980,095 8.00 % $ 42,475,119 10.00 %
 
Tier 1 Capital
(to Risk Weighted Assets) $ 52,470,246 12.35 % $ 25,485,071 6.00 % $ 33,980,095 8.00 %
 
Common Equity
Tier 1 Capital
(to Risk Weighted Assets) $ 52,470,246 12.35 % $ 19,113,803 4.50 % $ 27,608,827 6.50 %
 
Tier 1 Capital
(to Adjusted Average Assets) $ 52,470,246 10.82 % $ 19,398,600 4.00 % $ 24,248,250 5.00 %
 

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. 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, and acquisition or loss
of key production personnel. Other risks that can affect the Bank are
detailed from time to time in our quarterly and annual reports filed
with the Federal Financial Institutions Examination Council. 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
DECEMBER 31, 2017 AND 2016
 
 
(As Restated)
 
  2017     2016  
ASSETS
Cash and Due from Banks $ 1,164,368 $ 1,251,102
Interest Bearing Deposits with Banks 33,936,870 4,358,332
Federal Funds Sold 127,000 24,108,000
Securities Available-for-Sale 61,989,669 29,074,040
Securities Held-to-Maturity 14,869,181 15,035,844
Restricted Stock Investments 2,533,500 3,718,400
Loans Held for Sale 7,772,501 7,488,194
Loans Receivable 407,332,772 407,564,141
Allowance for Loan Losses   (4,562,370 )   (4,150,081 )

Net Loans

 

 

402,770,402

 

 

 

403,414,060

Bank Premises and Equipment, net 1,595,575

1,438,880

Accrued Interest Receivable 1,643,427

1,351,819

Deferred Tax Asset 974,614 2,288,271
Bank-Owned Life Insurance 2,338,146 2,281,726
Other Assets   1,407,079     1,078,706  
Total Assets $ 533,122,332   $ 496,887,374  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Demand deposits
Non-interest bearing $ 69,942,247 $ 62,941,221
Interest bearing 184,271,412 114,549,659
Savings deposits 2,273,760 2,921,102
Time deposits   209,493,201     218,980,247  
Total Deposits 465,980,620 399,392,229
Federal Home Loan Bank advances 10,428,571 43,714,286
Other accrued expenses 1,256,202 1,598,943
Accrued interest payable   162,749     175,072  
Total Liabilities   477,828,142     444,880,530  
Stockholders' Equity

Preferred stock, $0.01 par value, 5,000,000 shares authorized; 0
shares issued and outstanding, 2017 and 2016

- -

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:

5,866,765 and 5,550,565 shares issued and outstanding at December
31, 2017 and 2016, respectively

58,668 55,506
Non-Voting Common Stock:

660,143 and 628,707 shares issued and outstanding at December 31,
2017 and 2016, respectively

6,601 6,287
Additional paid-in capital 53,241,342 48,708,431
Accumulated other comprehensive loss, net (573,698 ) (523,402 )
Retained earnings   2,561,277     3,760,022  
Total Stockholders' Equity   55,294,190     52,006,844  
Total Liabilities and Stockholders' Equity $ 533,122,332   $ 496,887,374  
     
THE FREEDOM BANK OF VIRGINIA
 
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2017 AND 2016
 
(Restated)
  2017     2016  
Interest Income
Interest and fees on loans $ 21,117,267 $ 19,327,206
Interest on investment securities 1,993,655 1,174,707
Interest on Federal funds sold   19,922     9,338  
 

Total Interest Income

23,130,844 20,511,251
 
Interest Expense
Interest on deposits 4,831,359 3,581,426
Interest on borrowings   172,206     119,910  
 
Total Interest Expense 5,003,565 3,701,336
 
Net Interest Income 18,127,279 16,809,915
 
Provision for Loan Losses   30,000     1,090,500  
 
Net Interest Income after
Provision for Loan Losses   18,097,279     15,719,415  
 
Non-Interest Income
Gain on sale of mortgage loans 4,314,314 4,982,058
Service charges and other income 269,071 223,616

Increase in cash surrender value of bank-owned life insurance

  56,420     60,031  
 
Total Non-interest Income   4,639,805     5,265,705  
 
Non-Interest Expenses

Officer and employee compensation and benefits

10,916,694 10,984,208
Occupancy expense 1,002,240 982,653
Equipment and depreciation expense 556,024 536,758
Insurance expense 363,673 322,479
Professional fees 1,682,060 1,045,666
Data and item processing 930,667 908,258
Business development 225,535 203,717
Franchise taxes 492,508 385,787
Mortgage fees and settlements 711,797 995,428
Other operating expense   770,775     688,926  
 
Total Non-interest Expenses   17,651,973     17,053,880  
 
Income before Income Taxes 5,085,111 3,931,240
 
Income Tax Expense   2,389,792     1,276,880  
 
Net Income $ 2,695,319   $ 2,654,360  
 
Earnings per Common Share - Basic $ 0.41   $ 0.42  
 
Earnings per Common Share - Diluted $ 0.39   $ 0.41  
 
Weighted-Average Common Shares
Outstanding - Basic   6,518,614     6,351,547  
 
Weighted-Average Common Shares
Outstanding - Diluted   6,833,739     6,480,944  

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