Freedom Financial Holdings Announces Earnings for Second Quarter of 2024

Freedom Financial Holdings (OTCQX: FDVA), the holding company for The Freedom Bank of Virginia today announced net income of $2,044,233 or $0.28 per diluted share for the second quarter compared to net income of $1,164,226, or $0.16 per diluted share for the three months ended March 31, 2024, and net income of $1,770,075 or $0.24 per diluted share for the three months ended June 30, 2023. Net income for the six months ended June 30, 2024, was $3,208,460 or $0.44 per diluted share, compared to $3,006,710 or $0.41 per diluted share for the six months, ended June 30, 2023.

Joseph J. Thomas, President, and CEO, commented, “Our strong earnings in the second quarter, an improvement of 75.6% relative to the linked quarter and 15.5% ahead of the calendar quarter, were achieved in part through a reserve release related to the favorable resolution of our largest non-performing loan. While deposit costs stabilized in the second quarter, loan yields and legal expenses were negatively impacted by our efforts to proactively resolve high-yielding problem loans.  Loan growth in the quarter came from the exceptional efforts of our residential mortgage team and our tactical decision to retain loans on balance sheet given the attractive economics and favorable capital treatment.  Looking forward, the additions to our executive team and commercial banking practices this quarter, combined with strong balance sheet capacity, and growing confidence in a soft landing for the economy should lead to higher levels of loan and deposit growth in the second half of 2024.

Second Quarter 2024 Highlights include:

• The Company posted net income of $2,044,233 or $0.28 per diluted share for the second quarter compared to net income of $1,164,226 or $0.16 per diluted share for the three months ended March 31, 2024, and net income of $1,770,075 or $0.24 per diluted share for the three months ending June 30, 2023.
• Tangible Book Value per share¹ increased during the quarter to $11.11 on June 30, 2024, compared to $10.78 on December 31, 2023.
• Return on Average Assets (“ROAA”) was 0.75% for the quarter ended June 30, 2024, compared to ROAA of 0.43% for the quarter ended March 31, 2024, and 0.69% for the three months ended June 30, 2023.
• Return on Average Equity (“ROAE”) was 10.71% for the quarter ended June 30, 2024, compared to ROAE of 6.05% for the three months ended March 31, 2024, and 9.15% for the three months ended June 30, 2023.
• Total Assets were $1.10 billion on June 30, 2024, an increase of $11.44 million or 1.05% from total assets on December 31, 2023.
• Loans held-for-investment (excluding PPP loans) increased by $14.99 million or 1.97% during the quarter.
• Total deposits decreased by $14.73 million or by 1.65% during the quarter, largely due to seasonal activity. Non-interest-bearing demand deposits decreased by $5.21 million from the linked quarter to $136.49 million and represented 15.52% of total deposits on June 30, 2024.
• The net interest margin² decreased in the second quarter to 2.41%, lower by 13 basis points compared to the linked quarter and lower by 35 basis points compared to the same period in 2023. The decrease in the net interest margin across linked quarters was primarily related to expected payoffs of high yielding problem loans during the quarter.
• The cost of funds was 3.61% for the second quarter, higher by 1 basis point compared to the linked quarter and higher by 56 basis points compared to the same period in 2023, as changes in deposit and borrowing costs moderated, supplemented by income from balance sheet hedges.
• Non-interest income increased by 3.66% compared to the linked quarter and increased by 9.47% compared to the same period in 2023. The increase in non-interest income in the second quarter of 2024 compared to the linked quarter was primarily due to higher revenue from mortgage loans and an increase in the value of investments in SBIC’s.
• Non-interest expense in the second quarter decreased by 2.80% compared to the linked quarter and increased by 12.27% compared to the same period in 2023. The decrease in non-interest expense compared to the linked quarter, was primarily due to lower expenses related to compensation and occupancy. The increase in expenses compared to the calendar quarter was primarily related to higher occupancy costs, increased FDIC insurance costs and higher professional fees, in the form of legal costs related to loan workouts, as well as accounting fees related to FDICIA internal controls.
• The Efficiency Ratio³ was 81.72% for the quarter ended June 30, 2024, compared to 80.64% for the linked quarter and 69.02% for the same period in 2023.
• Uninsured deposits were 22.76% of total deposits and total available secured liquidity⁴ was 150.53% of uninsured deposits on June 30, 2024.
• Net charge offs decreased in the second quarter and were 0.01% of average loans compared to 0.14% in the prior quarter. The ratio of non-accrual loans to loans held-for-investment was 1.49% on June 30, 2024, compared to 1.74% on March 31, 2024, and 0.93% on June 30, 2023. The ratio of non-performing assets to total assets was 1.06% on June 30, 2024, compared to 1.21% on March 31, 2024, and 0.65% on June 30, 2023.
• Following the resolution of our largest non-performing loan, and an assessment of the collectability of loans held-for-investment, the Company had a negative loan loss provision of $1,167,997 in the second quarter, which reduced the allowance for losses.
• The ratio of the allowance for loan losses to loans held-for-investment was 1.06% compared to 1.24% in the linked quarter.
• The Company continues to be well capitalized and capital ratios continue to be strong with a Leverage ratio of 10.28%, Common Equity Tier 1 ratio of 13.05%, Tier 1 Risk Based Capital ratio of 13.05% and a Total Capital ratio of 14.01%.

Net Interest Income
The Company recorded net interest income of $6.19 million for the second quarter of 2024, lower by 5.49% compared to the linked quarter, and lower by 7.61% compared to the same period in 2023. The net interest margin in the second quarter of 2024 was 2.41%, lower by 13 basis points compared to the linked quarter and lower by 35 basis points compared to the same period in 2023.

The following factors contributed to the changes in net interest margin during the second quarter of 2024 compared to the linked and calendar quarters.

• Yields on average earning assets were 5.90% in the second quarter of 2024, lower by 9 basis points compared to the linked quarter, and higher by 22 basis points compared to the calendar quarter. The decline in yields on average earning assets in the second quarter was primarily due to a decline in loan yields, largely related to expected payoffs of high yielding problem loans during the quarter.
• Loan yields decreased by 17 basis points to 6.22% from 6.39% in the linked quarter, while yields on investment securities increased by 4 basis points to 4.92% from 4.88% in the linked quarter. Loan yields increased by 22 basis points, while yields on investment securities increased by 21 basis points compared to the calendar quarter.
• Cost of funds increased by 1 basis point to 3.61% from 3.60% in the linked quarter, and by 56 basis points compared to the calendar quarter, as changes in deposit and borrowing costs moderated, supplemented by income from balance sheet hedges. Deposit costs declined for non-maturity deposits and borrowings and were marginally higher for time deposits. Balance sheet hedges also offset any increase in deposit costs. The balance sheet hedges are in the form of interest rate swaps. The bank had $80 million in pay-fixed, receive floating swaps at the end of the quarter, and $20 million of a receive fixed, pay floating interest rate swap executed in the second quarter, as a hedge against declining rates on variable rate commercial loans.

Non-interest Income
Non-interest income was $1.22 million for the second quarter, an increase of 3.66% when compared to the linked quarter and an increase of 9.47% when compared to the same period in 2023. The increase in non-interest income in the second quarter of 2024 compared to the linked quarter was primarily due to higher revenue from mortgage loans and an increase in the value of investments in SBIC’s.

Total Revenue⁵
Total revenue, defined as the sum of net interest income, before provision for loan losses, and non-interest income, was lower by 4.10% compared to the linked quarter and lower by 5.18% compared to the calendar quarter in 2023. The decrease in total revenue compared to the linked quarter was primarily due to a decrease in the net interest margin, driven by a decline in loan yields, largely related to planned loan payoffs in the second quarter.

Non-interest Expense
Non-interest expense in the second quarter decreased by 2.80% compared to the linked quarter and increased by 12.27% compared to the same period in 2023. The decrease in non-interest expense compared to the linked quarter, was primarily due to lower expenses related to compensation and occupancy. The increase in expenses compared to the calendar quarter was primarily related to higher occupancy costs, increased FDIC insurance costs and higher professional fees, in the form of legal costs related to loan workouts, as well as accounting fees related to FDICIA internal controls.

The Efficiency Ratio was 81.72% for the quarter ended June 30, 2024, compared to 80.64% for the linked quarter and 69.02% for the same period in 2023.

Asset Quality
Non-accrual loans declined in the second quarter and were at $11,570,865 or 1.21% of loans held-for-investment compared to $13,236,862 or 1.74% of loans held-for-investment at the end of the linked quarter. As of June 30, 2024, 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 June 30, 2024. Total non-performing assets (defined as the sum of loans on non-accrual, loans greater than 90 days past due and accruing, and OREO assets) were $11,570,865 or 1.06% of total assets as of June 30, 2024, compared to $13,236,852 or 1.21% of total assets, at the end of the linked quarter.

Following the resolution of our largest non-performing loan, and an assessment of the collectability of loans held for-investment, the Company had a negative loan loss provision of $1,167,997 in the second quarter, which reduced the allowance for losses.

The Company’s ratio of Allowance for Loan Losses to loans held-for-investment was 1.06% as of June 30, 2024, compared to the ratio of Allowance for Loan Losses to loans held-for-investment of 1.24% as of March 31, 2024.

Total Assets
Total assets on June 30, 2024, were $1.10 billion compared to total assets of $1.08 billion on December 31, 2023.  Changes in major asset categories since December 31, 2023, were as follows:

• Interest bearing deposits at banks decreased by $11.06 million.
• Available for sale investment balances increased by $7.44 million.
• Other loans held-for investment increased by $5.88 million

Total Liabilities
Total liabilities on June 30, 2024, were $1.02 billion compared to total liabilities of $1.01 billion on March 31, 2024, and total liabilities of $1.00 billion on December 31, 2023. Total deposits were  $879.38 million on June 30, 2024, compared to total deposits of $894.11 million on March 31, 2024, and total deposits of $921.06 million on December 31, 2023. Non-interest-bearing demand deposits decreased by $5.21 million during the second quarter and comprised 15.52% of total deposits at the end of the second quarter. Other interest-bearing demand deposits decreased by $12.42 million, savings deposits increased by $958,901 and time deposits increased by $1.94 million during the quarter. Federal Home Loan Bank borrowings increased by $15 million during the quarter and borrowings from the Federal Reserve Bank of Richmond were flat.

Stockholders’ Equity and Capital
Stockholders’ equity as of June 30, 2024, was $79.30 million compared to $77.46 million on March 31, 2024, and stockholders’ equity of $77.23 million on December 31, 2023. AOCI was relatively unchanged during the second quarter as a decrease in unrealized losses on available-for-sale securities, was largely offset by a reduced gain on balance sheet hedges. The tangible book value of the Company’s common stock on June 30, 2024, was $11.11 per share compared to $10.83 on March 31, 2024, and tangible book value per share of $10.78  on December 31, 2023. Excluding AOCI losses/gains, the tangible book value of the Company’s common stock on June 30, 2024, was $13.70 per share compared to $13.39 on March 31, 2024, and $13.25 per share on December 31, 2023.

Stock Buyback Program
In April of 2024, the Company repurchased 19,243 shares pursuant to its authorized 250,000 share repurchase program.  As of June 30, 2024, the Company had repurchased 36,708 shares. Our Board of Directors believes that share buyback program represents continued disciplined capital management strategy for the company.

Capital Ratios
As of June 30, 2024, the Bank’s capital ratios were well above regulatory minimum capital ratios for well-capitalized bank holding companies. The Bank’s capital ratios as of June 30, 2024, and December 31, 2023, 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. For information about deposits, loans and other services, visit the website at www.freedom.bank.