FAIRFAX, Va.--(BUSINESS WIRE)--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 | ||||||
