FAIRFAX, Va.--(BUSINESS WIRE)--The Freedom Bank of Virginia (OTCQX: FDVA), (the “Bank” or “Freedom”), today reported a net loss of $832,408 or a net loss of $0.12 per diluted share, for the third quarter of 2018, compared to net income of $700,231 or $0.10 per diluted share for the second quarter of 2018.
The primary reasons for the third quarter loss were restructuring related: organizational and personnel changes within the Board of Directors and management, which we refer to in this earnings release as the “management restructuring”, and repositioning of the balance sheet. A summary of the changes in the third quarter related to the restructuring are as follows:
- Mr. H Jason Gold, a founding director of the Bank, was elected Chairman of the Board of Directors on July 17, 2018. Mr. Gold succeeded Mr. Richard Litman in the role of Chairman and Mr. Litman subsequently resigned from the Board.
- In August of 2018, Mr. Joseph J. Thomas assumed the role of President and Chief Executive Officer following the retirement of Mr. Craig Underhill, who had been the President and Chief Executive Officer.
- Total professional fees of $628,584 and severance of $303,990 were incurred during the quarter, with a significant portion of the professional fees related to the board and management restructuring.
- The Bank sold $25.3 million of municipal bonds at the end of the third quarter to reposition the bank’s interest rate sensitivity and redeploy proceeds into assets that are more consistent with the Bank’s future strategy. The sale resulted in pre-tax losses of $1.2 million during the quarter.
- The Bank sold 128,791 shares of common stock to Mr. Thomas and, via a contractual pre-emptive rights offering, to certain institutional shareholders. The sale of shares resulted in additional capital of $1.4 million and a modest accretion to book value per share as a result of the transaction.
Management continues to evaluate staffing levels, vendor relationships, and asset quality. The Bank expects to report additional extraordinary expenses in the fourth quarter of 2018, which could include additional severance expenses, termination costs related to vendor contracts, and possible credit costs related to the loan portfolio.
Joseph J. Thomas, President and CEO, remarked, "Freedom Bank completed a series of difficult, but necessary leadership, operating and balance sheet changes in the third quarter of 2018 that have adversely impacted our current period results and likely our fourth quarter performance. However, we believe that these changes taken together will reposition the Bank to achieve higher levels of earnings and an improved return/risk profile beginning in 2019. We are making long-term decisions to grow the value of our company and hold ourselves accountable to improved financial outcomes closer to or better than peer across a range of metrics over time."
Highlights for the Third Quarter:
- Net loss of $832,408 or a net loss of $0.12 per diluted share for the third quarter of 2018, compared to net income of $700,231 or $0.10 per diluted share for the linked second quarter of 2018;
- Total assets were $518.1 million at September 30, 2018, an increase of $5.3 million or 1.0% from June 30, 2018 and compared to $533.1 million in total assets on December 31, 2017;
- Loans held-for-investment grew by $4.3 million or at an annualized rate of 4.3% during the third quarter;
- Total deposits increased by $4.6 million during the quarter or at an annualized rate of 4.3% to $438.9 million at September 30, 2018. The deposit base saw a remixing with a decrease in money market deposits and an increase in longer duration time deposits, contributing to improved asset sensitivity and lower interest rate risk but an increase in the cost of funds;
- The Bank incurred a pre-tax loss of $1.2 million on the sale of $25.3 million of municipal bonds during the quarter;
- Non Interest expenses increased by 7.8% during the quarter, primarily due to an increase in legal and other professional fees. The higher fees were related to the management restructuring and planning for the shareholders meeting, which occurred in the third quarter;
- Non accrual loan balances increased during the quarter, primarily due to the deterioration of a single relationship. The loans are adequately secured and the Bank does not expect to incur any losses on the loans. Asset quality remains strong with the ratio of non performing assets to total assets at 1.39% as of September 30, 2018, compared to a ratio of 0.29% as of June 30, 2018.
- Capital ratios were strong during the third quarter, 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 June 30, 2018.
Total Revenue
Growth in loan balances and higher yields on earning assets during the third quarter caused interest income to increase to $5.95 million, compared to $5.82 million in the second quarter of 2018. Remixing of deposits during the quarter to fund loan growth and position the balance sheet for a rising rate environment resulted in higher balances of time deposits relative to money market deposits and a concurrent increase in the cost of funds during the quarter. Interest expense was $1.49 million during the third quarter, compared to $1.31 million in the second quarter. Net interest income (before a provision for loan losses) was $4.45 million during the third quarter compared to $4.50 million in the second quarter of 2018.
Non-interest income decreased during the quarter, with a loss of $274,083, compared to income of $1.2 million in the prior quarter, primarily due to losses recognized on the sale of municipal bonds during the third quarter and a 21.4% reduction in gain-on-sale revenues from mortgage operations, on lower origination volumes. If the losses from the sale of bonds were excluded, non-interest income for the third quarter would have been $907,025. Total revenue (comprising net interest income and non-interest income) was $4.18 million during the third quarter compared to $5.67 million during the prior quarter. Excluding the losses from the sale of municipal bonds would have resulted in total revenue of $5.4 million during the third quarter.
Non-interest Expense
Non-interest expense for the third quarter of 2018 was $5.24 million, higher by $380,000 compared to the prior quarter. The increase in non-interest expenses during the third quarter was primarily due to severance costs of $303,990, legal and professional fees related to the management restructuring and planning for the 2018 annual shareholders meeting, which was held in August.
Asset Quality
Non accrual loans were $4.4 million at the end of the third quarter of 2018, compared to $20,007 at the end of the prior quarter. The increase in non-accrual loans was primarily due to the deterioration of a single relationship during the third quarter. The loans are adequately secured and the bank does not expect to incur any losses on the loans. As of September 30, 2018, there was one troubled debt restructuring (“TDR”) with a balance of $79,869, or 0.02% of loans receivable, compared to $20,007 or 0.02% of loans receivable on June 30, 2018. On September 30, 2018, one loan with a balance of $1.6 million of loans was 90 days or more past due and not on non-accrual, representing 0.39% of loans receivable. On June 30 2018, $279,958 of loans were 90 days or more past due and not on non-accrual, representing 0.07% of loans receivable. Additionally, other real estate owned (“OREO”) on the balance sheet was $1.2 million as of September 30, 2018, unchanged from OREO balances as of the end of the prior quarter. 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 $7.2 million or 1.39% of total assets, compared to $1.5 million or 0.29% of total assets at June 30, 2018.
The Bank’s allowance for loan and lease losses (“ALLL”) was $4.30 million or 1.05% of loans receivable at September 30, 2018, compared to $4.36 million or 1.09% of loans receivable at June 30, 2018 and $4.56 million or 1.12% of loans receivable as of December 31, 2017.
Total Assets
Total assets at September 30, 2018 were $518.1 million compared to $512.8 million on June 30, 2018, an increase of $5.3 million during the linked quarter, and $533.1 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 increased by $30.5 million compared to June 30, 2018, following the sale of $25.3 million of municipal bonds at the end of the third quarter and an increase in deposits during the quarter. Securities balances decreased by $25.3 million following the sale of municipal bonds at the end of the third quarter. Loans receivable increased by $4.3 million during the quarter, while loans held-for-sale balances were lower by $4.2 million at the end of the third quarter compared to the quarter ended June 30, 2018.
Total Liabilities
Total liabilities at September 30, 2018 were $459.9 million, compared to total liabilities of $456.1 million on June 30, 2018 and total liabilities of $477.8 million on December 31, 2017. Total deposits were $438.9 million on September 30, 2018, higher by $4.6 million compared to the quarter ended June 30, 2018, and compared to $465.9 million in deposits on December 31, 2017. On a linked quarter basis, interest bearing demand deposits declined by $11.7 million, with the bulk of the decline occurring in money market balances, while time deposits increased by $18.2 million. The remixing of the deposit base is consistent with the Bank’s strategy to reposition the balance sheet for a rising rate environment. Federal Home Loan Bank advances were essentially flat during the quarter.
Stockholders’ Equity and Capital
Stockholders’ equity at September 30, 2018 was $58.1 million compared to $56.7 million on June 30, 2018, an increase of $1.4 million during the third quarter, and compared to stockholders equity of $55.3 million on December 31, 2017. Additional paid in capital at September 30, 2018 was $56.9 million compared to $54.6 million on June 30, 2018, representing an increase of $2.3 million during the quarter, and compared to additional paid in capital of $53.2 million on December 31, 2017. The additional capital followed the sale of additional shares to the incoming Chief Executive Officer, and via a contractual pre-emptive rights offering, to certain shareholders, as well as issuance of shares upon the exercise of stock options. Total shares issued and outstanding were 6,950,165 on September 30, 2018 compared to 6,719,644 at the end of the prior quarter. The book value of the Bank’s common stock at September 30, 2018 was $8.36 per share compared to $8.44 per share on June 30, 2018.
As of June 30, 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 September 30, 2018 and June 30, 2018 were as follows:
| September 30, 2018 | June 30, 2018 | |||||
| Total Capital Ratio | 15.50% | 15.09% | ||||
| Tier 1 Capital Ratio | 14.46% | 14.03% | ||||
| Common Equity | ||||||
| Tier 1 Capital Ratio | 14.46% | 14.03% | ||||
| Leverage Ratio | 11.66% | 11.37% | ||||
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 | ||||||||||||||||
| (Unaudited) | (Audited) | |||||||||||||||
| September 30, | June 30, | March 31, | December 31, | |||||||||||||
| 2018 | 2018 | 2018 | 2017 | |||||||||||||
| ASSETS | ||||||||||||||||
| Cash and Due from Banks | $ | 1,227,699 | $ | 1,783,930 | $ | 1,200,020 | $ | 1,164,368 | ||||||||
| Interest Bearing Deposits with Banks | 48,124,490 | 17,058,343 | 29,053,211 | 33,936,870 | ||||||||||||
| Federal Funds Sold | - | - | - | 127,000 | ||||||||||||
| Securities Available-for-Sale | 49,535,180 | 60,356,566 | 59,067,895 | 61,989,669 | ||||||||||||
| Securities Held-to-Maturity | - | 14,490,551 | 14,529,382 | 14,869,181 | ||||||||||||
| Restricted Stock Investments | 3,006,950 | 2,966,150 | 2,533,500 | 2,533,500 | ||||||||||||
| Loans Held for Sale | 6,326,703 | 10,531,335 | 5,045,282 | 7,772,501 | ||||||||||||
| Loans Receivable | 404,729,545 | 400,423,774 | 396,454,473 | 407,332,772 | ||||||||||||
| Allowance for Loan Losses | (4,299,345 | ) | (4,361,544 | ) | (4,507,545 | ) | (4,562,370 | ) | ||||||||
| Net Loans | 400,430,200 | 396,062,230 | 391,946,928 | 402,770,402 | ||||||||||||
| Bank Premises and Equipment, net | 1,807,802 | 1,834,378 | 1,806,182 | 1,595,575 | ||||||||||||
| Other Real Estate Owned | 1,167,785 | 1,167,785 | - | - | ||||||||||||
| Accrued Interest Receivable | 1,482,032 | 1,640,137 | 1,533,355 | 1,643,427 | ||||||||||||
| Deferred Tax Asset | 822,110 | 822,110 | 822,110 | 974,614 | ||||||||||||
| Bank-Owned Life Insurance | 2,378,920 | 2,365,268 | 2,351,683 | 2,338,146 | ||||||||||||
| Other Assets | 1,798,643 | 1,751,110 | 1,302,340 | 1,407,079 | ||||||||||||
| Total Assets | $ | 518,108,514 | $ | 512,829,893 | $ | 511,191,888 | $ | 533,122,332 | ||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
| Liabilities | ||||||||||||||||
| Deposits | ||||||||||||||||
| Demand deposits | ||||||||||||||||
| Non-interest bearing | $ | 71,057,617 | $ | 73,154,395 | $ | 69,129,363 | $ | 69,942,247 | ||||||||
| Interest bearing | 158,573,916 | 170,252,331 | 184,246,985 | 184,271,412 | ||||||||||||
| Savings deposits | 2,472,521 | 2,211,929 | 2,269,649 | 2,273,760 | ||||||||||||
| Time deposits | 206,848,346 | 188,684,911 | 188,825,421 | 209,493,201 | ||||||||||||
| Total Deposits | 438,952,400 | 434,303,566 | 444,471,418 | 465,980,620 | ||||||||||||
| Federal Home Loan Bank advances | 19,142,857 | 19,285,714 | 10,285,714 | 10,428,571 | ||||||||||||
| Other accrued expenses | 1,610,068 | 2,289,975 | 1,432,216 | 1,256,202 | ||||||||||||
| Accrued interest payable | 288,120 | 207,494 | 166,118 | 162,749 | ||||||||||||
| Total Liabilities | 459,993,445 | 456,086,749 | 456,355,466 | 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: | ||||||||||||||||
|
6,277,165, 6,059,501, 5,866,765 and 5,866,765 shares issued and outstanding at September 30, June 30, March 31, 2018 and December 31, 2017 |
62,772 | 60,595 | 58,668 | 58,668 | ||||||||||||
| Non-Voting Common Stock: | ||||||||||||||||
|
673,000, 660,143, 660,143, 660,143 shares issued and outstanding at September 30, June 30, March 31 2018 and December 31 2017 |
6,730 | 6,601 | 6,601 | 6,601 | ||||||||||||
| Additional paid-in capital | 56,938,702 | 54,640,242 | 53,282,243 | 53,241,342 | ||||||||||||
| Accumulated other comprehensive loss, net | (1,630,441 | ) | (1,534,010 | ) | (1,380,667 | ) | (573,698 | ) | ||||||||
| Retained earnings | 2,737,306 | 3,569,716 | 2,869,577 | 2,561,277 | ||||||||||||
| Total Stockholders' Equity | 58,115,069 | 56,743,144 | 54,836,422 | 55,294,190 | ||||||||||||
| Total Liabilities and Stockholders' Equity | $ | 518,108,514 | $ | 512,829,893 | $ | 511,191,888 | $ | 533,122,332 | ||||||||
| THE FREEDOM BANK OF VIRGINIA | ||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||
|
|
(Unaudited) |
|||||||||||||
| For the quarter ended | For the quarter ended | For the quarter ended | For the nine months ended | |||||||||||
| September 30, | June 30, | March 31, | September 30, | |||||||||||
| 2018 | 2018 | 2018 | 2018 | |||||||||||
| Interest Income | ||||||||||||||
| Interest and fees on loans | $ | 5,390,476 | $ | 5,263,052 | $ | 5,062,087 | $ | 15,715,615 | ||||||
| Interest on investment securities | 558,583 | 556,298 | 596,889 | 1,711,770 | ||||||||||
| Interest on Federal funds sold | - | - | 466 | 465 | ||||||||||
| Total Interest Income | 5,949,059 | 5,819,350 | 5,659,442 | 17,427,850 | ||||||||||
| Interest Expense | ||||||||||||||
| Interest on deposits | 1,389,640 | 1,231,777 | 1,273,775 | 3,895,192 | ||||||||||
| Interest on borrowings | 103,954 | 83,512 | 45,426 | 232,892 | ||||||||||
| Total Interest Expense | 1,493,594 | 1,315,289 | 1,319,201 | 4,128,084 | ||||||||||
| Net Interest Income | 4,455,465 | 4,504,061 | 4,340,241 | 13,299,767 | ||||||||||
| Provision for Loan Losses | - | - | - | - | ||||||||||
|
Net Interest Income after Provision for Loan Losses |
4,455,465 | 4,504,061 | 4,340,241 | 13,299,767 | ||||||||||
| Non-Interest Income | ||||||||||||||
| Gain on sale of mortgage loans | 846,654 | 1,077,194 | 576,275 | 2,500,123 | ||||||||||
| Service charges and other income | 46,719 | 79,489 | 90,582 | 216,790 | ||||||||||
| Gains(Losses) on sale of securities | (1,181,108 | ) | - | - | (1,181,108 | ) | ||||||||
|
Increase in cash surrender value of bank-owned life insurance |
13,652 | 13,585 | 13,537 | 40,774 | ||||||||||
| Total Non-interest Income | (274,083 | ) | 1,170,268 | 680,394 | 1,576,579 | |||||||||
| Non-Interest Expenses | ||||||||||||||
|
Officer and employee compensation and benefits |
3,151,301 | 2,985,201 | 2,693,270 | 8,829,772 | ||||||||||
| Occupancy expense | 277,941 | 277,967 | 273,113 | 829,021 | ||||||||||
| Equipment and depreciation expense | 166,368 | 184,299 | 141,569 | 492,236 | ||||||||||
| Insurance expense | 78,535 | 200,437 | 81,496 | 360,468 | ||||||||||
| Professional fees | 628,584 | 369,089 | 631,522 | 1,629,195 | ||||||||||
| Data and item processing | 365,946 | 294,419 | 277,357 | 937,722 | ||||||||||
| Business development | 47,320 | 70,108 | 70,577 | 188,005 | ||||||||||
| Franchise taxes | 141,887 | 138,309 | 131,156 | 411,352 | ||||||||||
| Mortgage fees and settlements | 137,423 | 140,156 | 125,480 | 403,059 | ||||||||||
| Other operating expense | 245,204 | 199,813 | 205,289 | 650,306 | ||||||||||
| Total Non-interest Expenses | 5,240,509 | 4,859,798 | 4,630,829 | 14,731,136 | ||||||||||
| Income before Income Taxes | (1,059,127 | ) | 814,531 | 389,806 | 145,209 | |||||||||
| Income Tax Expense | (226,718 | ) | 114,300 | 81,600 | (30,818 | ) | ||||||||
| Net Income | $ | (832,409 | ) | $ | 700,231 | $ | 308,206 | $ | 176,027 | |||||
| Earnings per Common Share - Basic | $ | (0.12 | ) | $ | 0.11 | $ | 0.05 | $ | 0.03 | |||||
| Earnings per Common Share - Diluted | $ | (0.12 | ) | $ | 0.10 | $ | 0.05 | $ | 0.03 | |||||
|
Weighted-Average Common Shares Outstanding - Basic |
6,873,123 | 6,629,749 | 6,526,908 | 6,637,619 | ||||||||||
|
Weighted-Average Common Shares Outstanding - Diluted |
6,873,123 | 6,856,291 | 6,847,521 | 6,995,540 | ||||||||||
