FAIRFAX, Va.--(BUSINESS WIRE)--The Freedom Bank of Virginia (OTCQX:FDVA) earned second quarter net income of $1,075,512, up 62.1% from $663,424 for the second quarter of 2016, and mid-year net income of $1,724,136, up 61.7% from $1,065,875 earned through June 30, 2016. Earnings per share for the second quarter were $0.17 versus $0.11 the prior year. For the first half of the year, earnings per share were $0.28, up from $0.17 in 2016. Book value per share was $8.69 at June 30, 2017 compared to $8.17 the prior year.
CEO Craig Underhill indicated, “The bank continues its three year trend of rapid net income growth. Once again the net income after taxes for 2017 exceeded the pre-tax figure for the prior year both for the quarter and for the first half of the year. First half net income of $1,724,136 for 2017 has already exceeded the full year net income for the bank in 2015. The bank is pleased with the earnings increases and core deposit growth through June 30th.”
Balance Sheet Review
The bank continues to show year over year growth. Total assets increased $43,660,625 (9.2%) to $519,492,612. The bank remained liquid with $37,530,549 in cash and federal funds sold. Investment securities totaled $49,514,739 providing $87,045,288 in liquid assets approximating 16.8% of total assets. In addition, the bank had $14,953,016 in municipal bonds held to maturity.
Loans held for investment of $396,553,521 at June 30, 2017, which was a $29,793,285 (8.1%) increase from the prior year. Loans held for sale were $14,442,513, down from $17,958,377 the prior year.
Asset quality was superior to national peers and improved from the prior year. Loan balances thirty days past due and still accruing interest was $134,333 at June 30, 2017 down from $156,682 at June 30, 2016. Non performing assets were only 0.10% of total assets at June 30, 2017, down from 0.20% a year earlier. Asset quality was assisted during the second quarter by a $286,000 loan recovery, which increased the allowance for loan and leases to $4,522,570. This recovery increased the allowance percentage at June 30, 2017 to 1.14%, up from 0.98% a year earlier due to the unexpected recovery.
EVP & Chief Lending Officer C. Kevin Curtis indicated, “In 2017 the bank is focusing on full business relationships which have significantly increased transaction account balances in addition to loans.”
Non-interest bearing checking deposits increased $1,970,190 (3.0%) to $68,598,802 at June 30, 2017 while interest bearing checking deposits were $145,830,987, up $42,510,010 (41.2%) from the prior year. Transaction account balances comprised 47.3% of total deposits at June 30, 2017 compared to 43.0% at June 30, 2016. Time Deposits consisting of certificate of deposit balances grew to $236,101,388 from $222,870,391.
Retained earnings and redemption of warrants offered in a 2015 capital raise increased total capital from $50,392,942 at June 30, 2016 to $53,929,937 at June 30, 2017. All capital ratios remained well above the level considered to well capitalized even with the higher capital levels required under the Basel III accords.
Operations for the Second Quarter
Revenue growth was strong in the second quarter of 2017 compared with the previous year. Interest on loans increased to $5,362,916 for the quarter ended June 30, 2017 from $4,532,347 the same quarter the prior year. Investment income on securities was up to $451,885 for the quarter from $335,430 for the second quarter of 2016. Higher interest rates combined with more deposits cause interest expense to increase to $1,187,580 for the quarter, up from $882,691 at June 30, 2016 quarter-end.
The bank had a recovery of a previously charged off loan in the second quarter of 2017 that resulted in a recovery of approximately $286,000. This precluded the need for the bank to make a provision for loan losses in the second quarter of 2017. The bank made a $267,000 provision for loan losses in the second quarter of 2016.
The bank had non-interest income to $1,489,782 for the second quarter of 2017 compared to $1,523,046 for the comparable quarter of 2016. As in previous years, the gain on sale of mortgages of $1,416,510 was the primary driver of non-interest income.
Non-interest expense increased 6.0% to $4,491,567 in the second quarter of 2017 compared to the prior year. Compensation and benefits was most of the increase, up $157,340 or 5.8% to $2,891,120. This was a combination of more employees and merit increases.
Net income before taxes was $1,075,512 for the quarter ended June 30, 2017 compared to $663,425 a year earlier. This was the first quarter in which the bank earned over $1 million for a calendar quarter. Income taxes for the quarter were $554,000 compared to $342,500 the prior year. Higher net income produced higher returns for shareholders. The ROA for the second quarter was 0.85% in 2017, up from 0.56% in 2016. The ROE was 8.08% for the second quarter of 2017, up from 5.35% in 2016.
Operations for the Six Months Ended June 30, 2017
The large increase in net profit resulted from increased revenue. Interest on loans increased 18.8% to $10,528,769 from $8,856,643 the prior year. Investment income on securities was up to $786,288 from $619,807 at June 30, 2016. Higher interest rates combined with more deposits cause interest expense to increase to $2,226,902 at June 30, 2017, up from $1,730,975 the previous year.
The provision for loan losses was only $30,000 at June 30, 2017 compared to $410,000 at June 30, 2016. The reason was the large recovery on a troubled credit combined with the reduced pace of loan growth in the first half of 2017.
Non-interest income was $2,310,119 at June 30, 2017 in line with the $2,327,818 the prior year. As in previous years, the gain on sale of mortgages of $2,144,901 was the driver of non-interest income.
Non-interest expense increased 6.0% to $8,762,215 at June 30, 2017 from the previous year. Compensation and benefits was most of the increase, up $449,720 or 8.7% to $5,637,181. This was a combination of more employees and merit increases.
Net income before taxes was $2,612,236 at June 30, 2017 compared to $1,616,174 a year earlier. Income taxes through June 30, 2017 were $888,100 and $550,300 through June 30, 2016. Increased profitability generated higher returns for shareholders. The ROA for the first half of 2017 was 0.60%, up from 0.50% in 2016. The ROE for the first half of 2017 was 5.35%, up from 4.45% in 2016.
Other News
The bank received regulatory approval to open its fourth branch banking office at 4500 Daly Drive, Suite 240, Chantilly, Virginia 20151. The branch is expected to increase the bank’s core deposit growth and is planned to open in the fourth quarter of 2017.
Freedom Bank is a community-oriented bank with locations in Fairfax, Reston and Vienna, Virginia. 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. Our past results of operations are not necessarily indicative of future performance.
| The Freedom Bank of Virginia | |||||||||
| Statements of Financial Condition | |||||||||
| June 30, 2017 | June 30, 2016 | ||||||||
| ASSETS | |||||||||
| Cash and due from banks | $ | 1,280,260 | $ | 1,175,840 | |||||
| Federal funds sold | 24,213,000 | 107,000 | |||||||
| Interest Bearing Balances with Banks | 12,037,289 | 26,583,206 | |||||||
| Investment securities available for sale, at fair value | 49,514,739 | 55,927,128 | |||||||
| Investment securities held to maturity | 14,953,016 | - | |||||||
| FHLB and Federal Reserve Bank stock | 2,402,850 | 2,883,000 | |||||||
| Loans held for sale | 14,442,513 | 17,958,377 | |||||||
| Loans receivable | 396,553,521 | 366,760,237 | |||||||
| Allowance for possible loan losses | (4,562,370 | ) | (3,584,959 | ) | |||||
| Net Loans | 391,991,151 | 363,175,278 | |||||||
| Premises and equipment, net | 1,402,961 | 641,784 | |||||||
| Accrued interest and other receivables | 1,322,230 | 1,161,348 | |||||||
| Deferred Tax Asset | 2,125,500 | 1,604,000 | |||||||
| Other assets | 1,093,081 | 2,363,071 | |||||||
| Bank Owned Life Insurance | 2,714,022 | 2,251,955 | |||||||
| Total Assets | $ | 519,492,612 | $ | 475,831,988 | |||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
| Liabilities: | |||||||||
| Demand deposits: | |||||||||
| Non-interest bearing deposits | $ | 68,598,802 | $ | 66,628,612 | |||||
| Interest Checking | 145,830,987 | 103,320,977 | |||||||
| Savings deposits | 2,672,910 | 2,003,193 | |||||||
| Time deposits | 236,101,388 | 222,870,391 | |||||||
| Total Deposits | 453,204,087 | 394,823,173 | |||||||
| Fed Funds Purchased and FHLB advances | 10,571,428 | 29,057,143 | |||||||
| Other accrued expenses | 1,633,705 | 1,420,774 | |||||||
| Accrued interest payable | 153,455 | 137,956 | |||||||
| Total Liabilities | 465,562,675 | 425,439,046 | |||||||
| Stockholders' Equity: | |||||||||
| Common stock of $0.01 par value with 25,000,000 shares authorized, | |||||||||
| 6,207,735 shares issued and outstanding at June 30, 2017 | |||||||||
| 6,166,454 shares issued and outstanding at June 30, 2016 | |||||||||
| Voting Common Stock | 55,790 | 55,377 | |||||||
|
5,579,028 and 5,537,747 shares issued and outstanding June 30, 2017 and June 30, 2016 |
|||||||||
| Non-Voting Common Stock | 6,287 | 6,287 | |||||||
|
628,707 shares issued and outstanding June 30, 2017 and June 30, 2016 |
|||||||||
| Additional paid-in capital | 48,249,352 | 47,744,708 | |||||||
| Accumulated other comprehensive income | (289,894 | ) | 78,211 | ||||||
| Dividends Declared | 3,988,470 | ||||||||
| Retained earnings | 1,919,932 | 2,508,359 | |||||||
| Total Stockholders' Equity | 53,929,937 | 50,392,942 | |||||||
| Total Liabilities and Stockholders' Equity | $ | 519,492,612 | $ | 475,831,988 | |||||
| The Notes to Financial Statements are an integral part of these statements. | |||||||||
| The Freedom Bank of Virginia | ||||||||||||
| Statements of Operations | ||||||||||||
| For the three months ended | For the six months ended | |||||||||||
| June 30, | June 30, | |||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||
| Interest Income | ||||||||||||
| Interest and fees on loans | $ | 5,362,916 | $ | 4,532,347 | $ | 10,528,769 | $ | 8,856,643 | ||||
| Interest on investment securities | 451,885 | 335,430 | 786,288 | 619,807 | ||||||||
| Interest on Federal funds sold | 4,075 | 640 | 6,177 | 7,722 | ||||||||
| Total Interest Income | 5,818,876 | 4,868,417 | 11,321,234 | 9,484,172 | ||||||||
| Interest Expense | ||||||||||||
| Interest on deposits | 1,140,971 | 851,589 | 2,148,269 | 1,681,655 | ||||||||
| Interest on borrowed funds | 46,609 | 31,102 | 78,633 | 49,320 | ||||||||
| Total Interest Expense | 1,187,580 | 882,691 | 2,226,902 | 1,730,975 | ||||||||
| Net Interest Income | 4,631,296 | 3,985,726 | 9,094,332 | 7,753,197 | ||||||||
| Provision for Possible Loan Losses | - | 267,000 | 30,000 | 410,000 | ||||||||
| Net Interest Income after | ||||||||||||
| Provision for Possible Loan Losses | 4,631,296 | 3,718,726 | 9,064,332 | 7,343,197 | ||||||||
| Other Income | ||||||||||||
| Gain on sale of mortgage loans | 1,416,510 | 1,451,410 | 2,144,901 | 2,175,374 | ||||||||
| Service charges and other income | 59,145 | 56,695 | 136,543 | 122,184 | ||||||||
| Increase in cash surrender value of bank-owned life insurance | 14,128 | 14,940 | 28,675 | 30,260 | ||||||||
| Total Other Income | 1,489,783 | 1,523,046 | 2,310,119 | 2,327,818 | ||||||||
| Operating Expenses | ||||||||||||
| Officers and employee compensation and benefits | 2,891,120 | 2,733,780 | 5,637,181 | 5,187,462 | ||||||||
| Occupancy expense | 236,513 | 237,866 | 490,081 | 480,183 | ||||||||
| Equipment and depreciation expense | 144,950 | 126,412 | 287,342 | 253,627 | ||||||||
| Insurance expense | 104,259 | 79,468 | 216,403 | 158,065 | ||||||||
| Professional fees | 304,026 | 239,753 | 658,029 | 465,819 | ||||||||
| Data and item processing | 246,360 | 232,169 | 414,487 | 469,016 | ||||||||
| Business development | 49,636 | 71,596 | 107,909 | 114,681 | ||||||||
| Franchise tax | 123,127 | 96,447 | 230,197 | 171,648 | ||||||||
| Mortgage fees and settlements | 185,824 | 277,167 | 326,732 | 430,745 | ||||||||
| Other operating expenses | 205,752 | 141,189 | 393,854 | 323,594 | ||||||||
| Total Operating Expenses | 4,491,567 | 4,235,847 | 8,762,215 | 8,054,840 | ||||||||
| Income before Income Taxes | 1,629,512 | 1,005,925 | 2,612,236 | 1,616,175 | ||||||||
| Provision for Income Taxes | 554,000 | 342,500 | 888,100 | 550,300 | ||||||||
| Net Income | $ | 1,075,512 | $ | 663,425 | $ | 1,724,136 | $ | 1,065,875 | ||||
| The Notes to Financial Statements are an integral part of these statements. | ||||||||||||
