Freedom Financial Holdings Announces Earnings for First Quarter of 2022

FAIRFAX, Va., April 28, 2022 /PRNewswire/ -- Freedom Financial Holdings (OTCQX: FDVA), (the "Company" or "Freedom"), the holding company for The Freedom Bank of Virginia (the "Bank") today announced net income of $2,784,297, or $0.38 per diluted share, for the three months ended March 31, 2022. This compares to net income of $2,743,088 or $0.37 per diluted share, for the linked quarter and net income of $2,468,211 or $0.34 per diluted share for the three months ending March 31, 2021.    

Joseph J. Thomas, President, and CEO, commented, "We entered 2022 with lots of uncertainties including COVID outbreaks, supply chain problems, low housing inventory, significant inflation, higher interest rates, and geopolitical instability.  I am proud of our team for sustaining the Company's profitability with net income up 12.8% in the first quarter of 2022 compared to the prior year and higher ROAA and ROAE of 1.29% and 13.53%, respectively.  Annualized growth in loans held-for-investment (excluding PPP loans) at 7.48% along with a 13-basis point increase in net interest margin to 3.68% bolstered interest income, up 9.86% over the prior year.  The company's core profitability has been resilient through a major cyclical downdraft in residential mortgage volumes, in part due to the emerging contribution of our Small Business Lending platform.  We have also been very disciplined on the expense front as reflected in the improved Efficiency Ratio of 61.70% for the quarter compared to 67.91% for the same period in 2021.  We remain grateful that the clients and communities we serve see value in our culture of innovation.  We continue to develop creative ideas to help clients grow and provide the financial services that they need."

First Quarter 2022 Highlights include:

• Net income for the first quarter was $2,784,297 or $0.38 per diluted share compared to net income of $2,743,088 or $0.37 per diluted share in the linked quarter and net income of $2,468,211 or $0.34 per diluted share for the three months ending March 31, 2021.
• Return on Average Assets ("ROAA") was 1.29% for the quarter ended March 31, 2022, compared to 1.22% for the linked quarter and 1.26% for the three months ended March 31, 2021.
• Return on Average Equity ("ROAE") was 13.53% for the three months ended March 31, 2022, compared to 13.11% for the linked quarter and 13.44% for the three months ended March 31, 2021.
• Total assets were $863.12 million on March 31, 2022, a decrease of $13.55 million or 1.55% from total assets on December 31, 2021.
• Loans held-for-investment (excluding PPP loans) increased by $10.64 million or 1.87% during the quarter.
• PPP loan balances decreased by $19.31 million during the first quarter on loan forgiveness and mortgage loans held for sale decreased by $2.04 million during the same period, on a decline in mortgage activity.
• Cash balances at the Federal Reserve decreased by $3.01 million during the first quarter.
• Available for sale investment securities decreased by $2.42 million during the first quarter.
• Total deposits increased by $12.99 million or by 1.85% in the first quarter. Non-interest-bearing demand deposits decreased by $13.99 million from the linked quarter to $208.17 million and represented 29.13% of total deposits on March 31, 2022.
• The net interest margin decreased in the first quarter to 3.68%, lower by 6 basis points compared to the linked quarter and higher by 13 basis points compared to the same period in 2021. Excluding PPP loans, the net interest margin would have been 3.55%. The decrease in the net interest margin across linked quarters was primarily due to lower yields on loans and a 3-basis point increase in funding costs.
• The cost of funds was 0.36% for the first quarter, higher by 3 basis points compared to the linked quarter and lower by 15 basis points compared to the same period in 2021, as deposit costs declined, partially offset by an increase in borrowing costs related to the issuance of subordinated debt in the fourth quarter of 2021.
• Non-interest income increased by 3.17% compared to the linked quarter and decreased by 40.61% compared to the same period in 2021. The increase in non-interest income compared to the linked quarter was primarily due to revenue from the sale of SBA loans and other fee income. The decrease in non-interest income compared to the calendar quarter was primarily due to lower mortgage revenue stemming from a slowdown in mortgage activity, partially offset by revenue from SBA loan sales.
• Non-interest expense in the first quarter decreased by 5.04% compared to the linked quarter and decreased by 11.94% compared to the same period in 2021. The decrease in non-interest expense in calendar quarters was primarily due to lower performance related costs: specifically, commissions paid to mortgage loan officers and mortgage settlement costs.
• The Efficiency Ratio was 61.70% for the quarter ended March 31, 2022, compared to 62.62% for the linked quarter and 67.91% for the same period in 2021.
• Non-accrual loans were relatively unchanged in the first quarter from the prior period, and the ratio of non-performing assets to total assets was 1.02% on March 31, 2022, compared to 0.28% on March 31, 2021.
• 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 Company recognized a $164,000 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 1.12% (or 1.15% excluding PPP loans, which carry a full faith and guarantee of the US Government) compared to 1.08% in the linked quarter (or 1.14% excluding PPP loans);
• The Bank continues to be well capitalized and capital ratios continue to be strong with a Leverage ratio of 12.09%, Common Equity Tier 1 ratio of 14.23%, Tier 1 Risk Based Capital ratio of 14.23% and a Total Capital ratio of 15.15%.

Paycheck Protection Program ("PPP") Activity
In the second quarter of 2020, the Company 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 round two 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. The Company originated $53.89 million of round two PPP loans during 2021.

Beginning in January of 2021, the Company began to process loan forgiveness applications from borrowers of 2020 PPP loans and round two PPP loans. As of March 31, 2022, the SBA had forgiven 713 of these PPP loans with balances of $117.17 million, and the Company had recognized income from acceleration of processing fees of $2.97 million.

Net Interest Income
The Company recorded net interest income of $7.61 million for the first quarter of 2022, a decrease of 5.12% compared to the linked quarter, and 14.16% higher than the same period in 2021. The net interest margin in the first quarter of 2022 was 3.68%, lower by 6 basis points compared to the linked quarter and higher by 13 basis points compared to the same period in 2021. Income from PPP loan forgiveness during the first quarter was $459,847 (from $14.42 million of PPP loans forgiven by the SBA), compared to PPP loan forgiveness income of $755,510 (from $19.75 million of PPP loans forgiven by the SBA) during the fourth quarter of 2021. Excluding the PPP loans, the net interest margin in the first quarter would have been 3.53%.

The following factors contributed to the changes in net interest margin during the first quarter of 2022 compared to the linked quarter:

• Yields on average earning assets decreased by 4 basis points to 4.01% compared to 4.05% in the linked quarter, driven by lower yields on loans and investments during the quarter.
• Loan yields decreased by 36 basis points to 4.75% from 5.11% in the linked quarter, while yields on investment securities decreased by 9 basis points to 2.45% from 2.54% in the linked quarter. Higher payoff activity and a slower pace of PPP loan forgiveness contributed to the decline in loan yields.
• Cost of funds increased by 3 basis points to 0.36%, from 0.33% in the linked quarter, as higher borrowing costs offset declines in deposit costs. The higher borrowing costs were related to the subordinated debt that was issued in November of 2021 as well as fewer low-cost advances from the PPP Liquidity Facility. Advances from the PPP Liquidity Facility are retired as the associated PPP loans are forgiven or paid off.
• Excluding PPP loans would have reduced the net interest margin by 15 basis points.

Non-interest Income
Non-interest income was $1.82 million for the first quarter, higher by 3.17% compared to the linked quarter and lower by 40.61% compared to the same period in 2021. The higher non-interest income across linked quarters was primarily due to an increase in SBA gain-on-sale revenue and other fee income, while the decline in non-interest income compared to the calendar quarter was largely due to lower mortgage gain-on-sale and fee revenue, stemming from a decline in mortgage activity.

Total Revenue
Total revenue, defined as the sum of net interest income, before provision for loan losses, and non-interest income, was lower by 3.63% compared to the linked quarter, primarily due to lower net interest income driven by a decline in the net interest margin, and lower by 3.07% compared to the same period in 2021, primarily due to lower non-interest income in the calendar quarter.

Non-interest Expenses
Non-interest expenses in the first quarter of 2022 were lower by 5.04% compared to the linked quarter and decreased by 11.94% compared to the same period in 2021. The decrease in non-interest expenses in the first quarter compared to the prior quarter was largely due to lower compensation costs, a decrease in legal fees and lower mortgage settlements costs. 

The Efficiency Ratio was 61.70% for the quarter ended March 31, 2022, compared to 62.62% for the prior quarter and 67.91% for the same period in 2021.

Asset Quality
Non-accrual loans were $8,770,552 or 1.48% of loans held-for-investment as of March 31, 2022, compared to $8,801,983 or 1.46% of loans held-for-investment at the end of the linked quarter. There were no troubled debt restructurings ("TDRs") as of March 31, 2022. On March 31, 2022, 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, 2022. 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 $8,770,552 or 1.02% of total assets on March 31, 2022, compared to $8,801,983 or 1.00% of assets, at the end of the linked quarter.

Following an assessment of the collectability of the loans held-for-investment at the end of the fourth quarter, it was determined that a $164,000 provision for loan losses was necessary to account for loan growth and changes to environmental factors. The Company booked a provision of $355,000 in the fourth quarter of 2021. The Company's ALLL ratio was 1.12% of loans held-for-investment (or 1.15% of loans held-for investment excluding PPP loans) as of March 31, 2022, compared to an ALLL ratio of 1.08% on December 31, 2021 (or 1.14% of loans held-for-investment excluding PPP loans).

Total Assets
Total assets on March 31, 2022, were $863.12 million compared to $876.67 million on December 31, 2021. Changes in major asset categories during linked quarters were as follows:

• Cash balances at the Federal Reserve decreased by $3.01 million
• Available for sale investment balances decreased by $2.42 million
• PPP loan balances decreased by $19.31 million on loan forgiveness by the SBA
• Other loans held-for investment grew by $10.64 million
• Mortgage loans held-for-sale declined by $2.04 million

Total Liabilities

Total liabilities on March 31, 2022, were $783.33 million compared to total liabilities of $792.51 million on December 31, 2021. Total deposits were $714.69 million compared to total deposits of $701.69 million on December 31, 2021. Non-interest-bearing demand deposits decreased by $13.99 million during the quarter and comprised 29.13% of total deposits at the end of the quarter, compared to 31.66% of total deposits on December 31, 2021. Other interest-bearing demand deposits increased by $26.37 million, savings deposits increased by $1.63 million and time deposits declined by $1.01 million during the quarter. Federal Home Loan Bank advances decreased by $3.14 million during the quarter, while PPP Liquidity Facility term advances decreased by $18.95 million, in line with PPP loan forgiveness.

Stockholders' Equity and Capital

Stockholders' equity on March 31, 2022, was $79.79 million compared to $84.16 million on December 31, 2021. Additional paid-in capital was $58.66 million on March 31, 2022, compared to $59.88 million on December 31, 2021. Accumulated Other Comprehensive Income ("AOCI"), which generally comprises unrealized gains and losses on available-for-sale securities and derivative positions, decreased by $5.92 million on net unrealized losses during the first quarter of 2022. Retained earnings were $26.33 million on March 31, 2022, compared to $23.55 million at the end of the prior quarter. Total shares issued and outstanding were 7,286,915 on March 31, 2022, compared to 7,262,757 shares on December 31, 2021. The tangible book value of the Company's common stock on March 31, 2022, was $10.95 per share compared to $11.59 per share on December 31, 2021, and $10.35 per share on March 31, 2021.

As of March 31, 2022, the Bank's capital ratios were well above regulatory minimum capital ratios for well-capitalized bank holding companies. The Bank's capital ratios on March 31, 2022, and December 31, 2021, were as follows:

About Freedom Financial Holdings, Inc.

Freedom Financial Holdings, Inc. is the holding company of The Freedom Bank of Virginia, a community bank with locations in Fairfax, Reston, Chantilly, Vienna, and Manassas, Virginia. The Freedom Bank of Virginia also has a mortgage division headquartered in Chantilly. For information about deposit, loan and other services, visit the 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 Company 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 and the impact of the geopolitical conflict between Russia and Ukraine;  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, wars, 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 Company's borrowers to satisfy their obligations to the Company, on the value of collateral securing loans, on the demand for the Company's loans or its other products and services, on incidents of cyberattack and fraud, on the Company's liquidity or capital positions, on risks posed by reliance on third-party service providers, on other aspects of the Company's business operations and on financial markets and economic growth. The Company 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 Company 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
703-667-4161: Phone
[email protected]: Email