The Freedom Bank of Virginia Announces Earnings for the First Quarter of 2021

FAIRFAX, Va. (April 29, 2021) – The Freedom Bank of Virginia (OTCQX: FDVA), (the “Bank” or “Freedom”) today announced net income of $2,468,211, or $0.34 per diluted share, for the three months ended March 31, 2021. This compares to net income of $2,413,775 or $0.33per diluted share, for the linked quarter and net income of $849,806 or $0.11 per diluted share for the three months ending March31, 2020.

Joseph J. Thomas, President and CEO, commented, “Balance sheet growth fueled by new lead relationships and additional PPP clients, along with continued improvement in the composition and cost of our deposits, enabled the bank to drive our net income for the first quarter of 2021 to another record level, overcoming a softening in mortgage business volumes caused by rising rates and historically low levels of homes for sale in our primary market. The Bank’s momentum enabled us to nearly triple net income in the first quarter of 2021 compared to the prior year and sustain strong returns on average assets and returns on average equity relative to peers. I remain grateful to our clients for choosing Freedom Bank in this challenging business climate and proud of our employees who continue to work virtually and deliver strong results in the face of persistent impacts of the COVID-19 pandemic across the DC region. ”

First Quarter 2021Highlights include:

• Net income for the first quarter was $2,468,211 or $0.34 per diluted share compared to net income of $2,413,775 or $0.33 per diluted share in the linked quarter and net income of $849,806 or $0.11 per diluted share for the three months ended March 31, 2020. The increase in net income in calendar quarters was primarily due to an increase in earning assets and an expansion in net interest margin;
• Pre-tax, pre-provision net income was $3,122,414 for the first quarter compared to pre-tax, pre-provision net income of $1,398,806 for the same period in 2020;
• Return on Average Assets ("ROAA") was 1.26% for the quarter ended March 31, 2021 compared to 1.28% for the linked quarter and 0.68% for the three months ended March 31, 2020;
• Return on Average Equity ("ROAE") was 13.44% for the three months ended March 31, 2021 compared to 13.43% for the linked quarter and 5.27% for the three months ended March 31, 2020;
• Total assets were $871.04 million on March 31, 2021, an increase of $103.99 million or 13.56% from total assets on December 31, 2020;
• Total loans increased by $50.94 million or by 8.55% during the quarter. Loans held-for-investment (excluding PPP loans) increased by $26.20 million or 5.83% during the quarter, while PPP loan balances increased by $22.32 million and mortgage loans held for sale increased by $2.42 million;
• Cash balances at the Federal Reserve increased by $49.91 million during the first quarter, primarily due to a surge in deposit growth;
• Total deposits increased by $78.63 million or by 14.34% in the first quarter. Non-interest bearing demand deposits increased by $24.45 million from the linked quarter to $217.44 million and represented 34.67% of total deposits on March 31, 2021;
• The net interest margin increased in the first quarter to 3.55%, higher by 49 basis points compared to the linked quarter and higher by 29 basis points compared to the same period in 2020. The increase in the net interest margin across linked quarters was primarily due to higher loan yields, up by 47 basis points, and a 12 basis point reduction in funding costs. The increase in loan yields was due to strong loan growth during the quarter as well as acceleration of deferred fees from PPP loans that were forgiven in the first quarter. Excluding the additional income from PPP loan forgiveness would have reduced the net interest margin by 31 basis points;
• The cost of funds was 0.51% for the first quarter, lower by 12 basis points compared to the linked quarter and lower by 93 basis points compared to the same period in 2020, as deposit and borrowing costs declined across the board;
• Non-interest income decreased by 35.16% compared to the linked quarter, primarily due to lower mortgage revenue as higher rates caused mortgage activity to slow from the linked quarter;
• Non-interest expense decreased by 4.41% compared to the linked quarter and increased by 37.96% compared to the same period in 2020. 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 data processing expenses stemming from loan and deposit growth;
• The Efficiency Ratio was 67.91% for the quarter ended March 31, 2021, compared to 67.52% for the linked quarter and 76.15% for the same period in 2020;
• Asset quality remained strong with the ratio of non-performing assets to total assets at 0.28% on March 31, 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 $64,000 provision for loan losses during the first quarter and the ratio of the allowance for loan and lease losses to loans held-for-investment was 0.92% (or 1.16% excluding PPP loans, which carry a full faith and guarantee of the US Government) compared to 0.99% in the linked quarter (or 1.21% excluding PPP loans);
• The Bank continues to be well capitalized and capital ratios continue to be strong with a Leverage ratio of 10.95%, Common Equity Tier 1 ratio of 12.88%, Tier 1 Risk Based Capital ratio of 12.88% and a Total Capital ratio of 13.84%.

Total Revenue

Total revenue, defined as the sum of net interest income, before provision for loan losses, and non-interest income, was less than the linked quarter, primarily due to lower non-interest income, and higher by 54.69% compared to the same period in 2020.  

Payment Protection Program 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 2021 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. As of April 13, 2021, the bank had made 337 of these PPP loans with a total balance of $50.14 million and expects to collect $2.10 million in fees over the term of the loans.

Beginning in January of 2021, the bank began to process loan forgiveness applications from borrowers of 2020 PPP loans. As of April 13, 2021, the SBA had forgiven 277 of these PPP loans with balances of $33.19 million, and the bank had earned $1.31 million in fees expected to be collected on all 2020 PPP loans. 

Net Interest Income

The Bank recorded net interest income of $6.67 million for the first quarter of 2021, an increase of 20.88% compared to the linked quarter, and 70.20% higher than the same period in 2020. The net interest margin in the first quarter of 2021 was 3.55%, higher by 49 basis points compared to the linked quarter and higher by 29 basis points compared to the same period in 2020. Income from PPP loan forgiveness during the quarter was $576,748.

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

• The surge in deposits during the quarter resulted in high levels of excess liquidity which pressured yields on average earning assets.
• Yields on average earning assets increased by 38 basis points to 4.02% compared to 3.64% in the linked quarter, primarily due to higher yields on loans and investment securities.
• Loan yields increased by 47 basis points to 4.61% from 4.14% in the linked quarter, while yields on investment securities increased by 4 basis points to 2.34% from 2.30% in the linked quarter.
• Cost of funds decreased by 12 basis points to 0.51%, from 0.63% 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 31 basis points.

Non-interest Income

Non-interest income was $3.06 million for the first quarter, lower by 35.16% compared to the linked quarter and higher by 29.06% compared to the same period in 2020. 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 first quarter of 2021.

Non-interest Expenses

Non-interest expenses in the first quarter of 2021 decreased by 4.41% compared to the linked quarter and increased by 37.96% compared to the same period in 2020. The decline in non-interest expenses in the first quarter compared to the linked quarter was largely due to lower mortgage settlement costs, and declines in professional fees and data processing expenses.

The Efficiency Ratio was 67.91% for the quarter ended March 31, 2021, compared to 67.52% for the prior quarter and 76.15% for the same period in 2020.

Income Taxes

The bank's effective tax rate during the quarter was 19.30% compared to an effective tax rate of 21.83% in the fourth quarter of 2020. The lower effective tax rate was largely due to application of tax credits received from an investment in low income housing tax credits. The bank expects to receive additional tax credits from this investment in 2021.

Asset Quality

Non-accrual loans were $2.48 million or 0.41% of loans held-for-investment at the end of the first quarter of 2021, compared to $3.18 million or 0.58% of loans held-for-investment at the end of the linked quarter. There were no troubled debt restructurings ("TDRs") as of March 31, 2021. On March 31, 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 March 31, 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 $2.48 million or 0.28% of total assets at March 31, 2021 compared to $3.18 million or 0.41% 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 March 31, 2021.

Following an assessment of the collectability of the loans held-for-investment at the end of the first quarter, it was determined that a $64,000 provision for loan losses was necessary to account for loan growth, the release of reserves related to loans whose payments had been deferred, and changes to environmental factors. The Bank booked a provision of $238,000 in the fourth quarter of 2020. The Bank's ALLL ratio was 0.92% of loans held-for-investment (or 1.16% of loans held-for investment excluding PPP loans) as of March 31, 2021 compared to an ALLL ratio of 0.99% at December 31, 2020 (or 1.21% of loans held-for-investment excluding PPP loans).

Total Assets

Total assets at March 31, 2021 were $871.04 million compared to $767.04 million on December 31, 2020. Changes in major asset categories during linked quarters were as follows:

• PPP loan balances increased by $22.32 million
• Other loans held-for investment grew by $26.20 million
• Cash balances at the Federal Reserve increased by $49.91 million

Total Liabilities

Total liabilities at March 31, 2021 were $795.41 million compared to total liabilities of $693.59 million on December 31, 2020. Total deposits were $627.12 million compared to total deposits of $548.49 million on December 31, 2020. The primary reason for the increase in deposits compared to the linked quarter was an increase in non-interest bearing deposits. Non-interest bearing demand deposits increased by $27.45 million during the quarter, and comprised 34.67% of total deposits at the end of the quarter, compared to 35.19% of total deposits on December 31, 2020, and 20.58% of total deposits on March 31, 2020. Federal Home Loan Bank advances declined during the quarter, while lower cost PPP Liquidity Facility term advances increased.

Stockholders' Equity and Capital

Stockholders' equity at March 31, 2021 was $75.63 million compared to $73.46 million on December 31, 2020. Additional paid in capital was $59.35 million on March 31, 2021 compared to $59.22 million on December 31, 2020. Accumulated Other Comprehensive Income ("AOCI"), which generally comprises unrealized gains and losses on available-for-sale securities and derivative positions, decreased by $420,596 on net unrealized losses during the first quarter of 2021. Total shares issued and outstanding were 7,307,915 on March 31, 2021 compared to 7,283,647 shares on December 31, 2020. The tangible book value of the Bank's common stock at March 31, 2021 was $10.35 per share compared to $10.09 per share on December 31, 2020 and $9.02 per share on March 31, 2020.

As of March 31, 2021 of the Bank's capital ratios were well above regulatory minimum capital ratios for well-capitalized banks. The Bank's capital ratios on March 31, 2021 and December 31, 2020 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

Contact:

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