Annual Report
2009
TABLE OF CONTENTS
MANAGEMENT DISCUSSION
PAGE
1-2
INDEPENDENT AUDITORS’ REPORT
3
FINANCIAL STATEMENTS
Balance Sheets
Statements of Operations
Statements of Changes in Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
BOARD OF DIRECTORS & SENIOR MANAGEMENT
DIRECTORS EMERITUS, ADVISORY BOARD &
GOVERNMENT CONTRACTING COUNCIL
OFFICERS & STAFF
COMMERCIAL ACCOUNT SERVICES
PERSONAL ACCOUNT SERVICES
4
5
6
7
8-24
25
26
27-28
29
30
MANAGEMENT DISCUSSION
Describing the year 2009 is like writing two stories with opposite story lines and outcomes. The final three
quarters of 2009 is certainly much easier to describe than the first quarter. The Bank earned $874,198 in the
last three quarters of 2009, but in the first quarter it had to make a loan loss provision of $3,810,744 which in
turn led to a net operating loss of $4,504,734 for the first quarter and a loss of $3,630,535 for the year.
The Provision in the first quarter was recognized due to the deterioration in the economy and rising
unemployment in general, and specifically in recognition of decreased value of real property. Real estate
values in Northern Virginia were lower due to the effect of the recession and increased unemployment
which started with the sub-prime loan collapse and the burst of the residential real estate “bubble”. The
Bank never engaged in sub-prime or alternate lending practices; however real estate sales slowed, inventory
of unsold houses increased and real estate loan collateral values decreased. Numerous builders and
residential developers ran out of cash to carry their projects during slow periods and the Bank experienced
increased loan delinquency and foreclosures. Bank officers monitored the credit quality of the loan portfolio
closely and worked diligently to reduce the amount of non-performing assets.
Since the end of the first quarter, credit quality has improved, delinquencies have decreased and several loan
problems have been resolved. Residential real estate values have begun increasing again, existing home
sales have improved. Construction of new homes has not improved enough to absorb the overhang of
residential building lots but we hope to see signs of improvement in 2010. Other Real Estate Owned (OREO)
was reduced to zero by the end of 2009 reflecting the effort to resolve credit problems.
The second quarter of 2009 begins the change in the story line to a more favorable outcome. The Bank
returned to profitability at the beginning of the second quarter and reported Net Income of $104,523 for the
whole quarter. The Third Quarter of 2009 produced Net Income of $238,304, and finally, reported Net
Income of $531,371 for the Fourth Quarter of 2009, the third consecutive quarter of increased profitability.
The second, third and fourth quarter total net income was $874,198, the best three quarters of the Bank’s
history.
Two reasons which are readily apparent for the Bank performance may be seen by reviewing the balance
sheet. They are the increase in loans outstanding and the increase in total deposits. Loans outstanding
increased $13,938,601 between December 31, 2008 and December 31, 2009 and ended the period at
$135,400,086. Total Deposits increased $16,531,342 and ended the year at $137,431,805. A sub-component of
total deposits is non-interest bearing demand deposits which increased $8,138,589 and at December 31, 2009
totaled $27,796,586. This growth, in a very challenging year, brought loans outstanding above the breakeven
level we have discussed frequently since the expansion plan was implemented in the middle of 2007.
Turning to the Statement of Operations, interest income increased to $8.2 million from $7.7 million but when
looking at the component parts of interest income, both investment securities income and Fed Funds sold
income decreased along with market rates while interest and fees on loans increased $1 million resulting
from increased volume of loans outstanding.
Interest Expense decreased to $2,879,159 from $3,297,216 continuing the trend of lower interest rates. Even
though interest expense decreased, the volume of deposits increased to $137,431,805 as of December 31, 2009
from $120,900,463. Interest Expense, calculated as an annualized percentage of deposits on the last day of
the year was 2.09% at December 31, 2009 compared to 2.73% as of December 31, 2008.
The Provision for Possible Loan Losses was $4,435,744 for the entire 2009 year. In 2008, the Provision was
$1,865,000. Of the total Provision, $3,810,744 was taken in the first quarter 2009.
Other Income from service charges increased to $572,448 for the year 2009 compared to $309,930 for 2008.
Gain on sale of other real estate owned totaled $462,621. There were no comparable gains in 2008.
Total Operating Expenses increased to $5,550,037 during 2009 from $5,047,824 in 2008.
The combination of these factors, increased loan volume, increased interest on loans, decreased interest
expense on deposits, increased loan loss provision, increased other income and gain on other real estate
sales, resulted in a Net Loss of $3,630,535 for the whole year. However, the loss provision was largely a first
quarter event, the since the first quarter the Bank has returned to profitability, with the final three quarters
combined to total $874,198 in Net Income.
Freedom Bank capital remains strong with all capital ratios remaining above the “Well Capitalized”
regulatory ratios. As of December 31, 2009, Freedom Bank had a 12.03% Tier 1 Leverage Ratio, more than
twice the ratio considered by regulators to be “Well Capitalized.” Tier 1 Risk Based Capital Ratio was
14.08% and likewise, this ratio was more than twice the regulatory definition of “Well Capitalized.” The Tier
2 Risk Based Capital Ratio is 15.34%. “Well Capitalized” is above 10%.
This report is a bit longer than usual but the 2009 year was, as stated at the beginning of the letter, two
different stories in one year with better results occurring more recently.
With all of challenges of 2009, we remained focused and did not slow down our efforts to provide a high
level of customer service. Your Bank continued to invest in new products and services necessary to keep us
competitive with other financial institutions in our area. For our business clients, corporate credit cards are
now available. We also expanded our commercial remote capture product which has been highly successful
and allows businesses the capability of depositing checks received from their customers directly from their
own office computers. Deposits can be made beyond traditional banking hours and on weekends.
Beginning in June 2009, the bank introduced “e-statements” for both commercial and consumer clients. “E-
Statements” are available days sooner than mailed statements and allows us to help the environment by
going “green” and saving on paper. In October of 2009, the Bank switched to “branch capture” for the
processing of checks deposited at the teller line which extended the cut-off time for deposits from 2 pm to 4
pm.
Regrettably in July 2009, the board of directors lost a valuable colleague with the death of director Russell E.
(Ted) Sherman. Mr. Sherman had been a director with our Bank since February 2007. He served as
Chairman of the Bank’s Compensation Committee and was a member of the director’s Loan Committee. The
board valued his advice, expertise and commitment. He was a great asset to our Bank and will be greatly
missed by everyone.
As always, we thank you for your continued support and dedication. The directors, senior management and
staff are dedicated and working diligently to maintain profitability in 2010 as we saw during the last three
quarters of 2009.
Richard C. Litman
Chairman of the Board
John T. Rohrback
President & CEO
2
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Stockholders
The Freedom Bank of Virginia
Vienna, Virginia
We have audited the accompanying balance sheets of The Freedom Bank of Virginia as of
December 31, 2009 and 2008, and the related statements of operations, changes in stockholders’ equity and
cash flows for the years then ended. These financial statements are the responsibility of the Bank’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of The Freedom Bank of Virginia as of December 31, 2009 and 2008, and the results of its
operations and its cash flows for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
Fairfax, Virginia
March 4, 2010
4035 Ridge Top Road, #700, Fairfax, Virginia 22030 (703) 385-8888 Fax (703) 385-3940
10694-A Crestwood Drive, Manassas, Virginia 20109-3497 (703) 368-3533 Fax (703) 361-1958
www.tgccpa.com
Member of American Institute of Certified Public Accountants Division for CPA Firms
3
BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
ASSETS
Cash and due from banks
Federal funds sold
Securities available-for-sale
Securities held-to-maturity
Federal Reserve Bank stock, at cost
Loans receivable
Allowance for possible loan losses
Net Loans
Bank premises and equipment, net
Accrued interest receivable
Other real estate owned
Other assets
Total Assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Demand deposits
Non-interest bearing
Interest bearing
Savings deposits
Time deposits
Total Deposits
Other accrued expenses
Accrued interest payable
Total Liabilities
Stockholders' Equity
THE FREEDOM BANK OF VIRGINIA
2009
2008
$ 1,375,127
10,824,000
4,631,602
$ 1,184,600
11,487,000
2,592,145
4,032,860
556,400
7,118,270
712,800
135,400,086
121,461,485
(1,907,853) (2,276,824)
133,492,233
429,828
119,184,661
535,648
483,510
418,545
-
705,329
1,456,147
261,374
$ 157,281,707
$ 144,200,372
$ 27,796,586 $ 19,657,997
16,257,975
14,161,811
660,759
519,205
92,716,485
86,561,450
137,431,805 120,900,463
699,778
391,416
91,096
203,169
138,222,679
121,495,048
Common stock, $5 par value, 5,000,000 shares authorized:
2,357,361 shares issued and outstanding, 2009 & 2008
11,786,805
11,786,805
Additional paid-in capital
Accumulated other comprehensive income
16,002,413
16,002,413
44,133
59,894
Retained earnings (deficit)
(8,774,323)
(5,143,788)
Total Stockholders' Equity
19,059,028
22,705,324
Total Liabilities and Stockholders' Equity
$ 157,281,707
$ 144,200,372
4
The Notes to Financial Statements are an integral part of these statements.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2009 AND 2008
Interest Income
Interest and fees on loans
Interest on investment securities
Interest on Federal funds sold
THE FREEDOM BANK OF VIRGINIA
2009
2008
$ 7,655,791 $ 6,672,194
518,444 786,168
25,101 226,488
Total Interest Income
8,199,336
7,684,850
Interest Expense
Interest on deposits
Net Interest Income
Provision for Possible Loan Losses
Net Interest Income after
Provision for Possible Loan Losses
Other Income
Service charges and other income
Gain on sale of other real estate owned
2,879,159 3,297,216
5,320,177 4,387,634
4,435,744 1,865,000
884,433 2,522,634
572,448 309,930
-
462,621
Total Other Income
1,035,069
309,930
Operating Expenses
Officers and employee compensation and benefits
Occupancy expense
Equipment and depreciation expense
Insurance expense
Professional fees
Data and item processing
Business development
Franchises tax
Other operating expenses
3,011,968
2,848,087
489,678
503,075
242,436
230,639
78,421
276,562
161,214
701,280
436,879
466,695
113,784
69,271
220,144
160,302
234,284 353,142
Total Operating Expenses
5,550,037
5,047,824
Loss before Income Taxes
(3,630,535) (2,215,260)
Provision for Income Taxes
-
-
Net Loss
$ (3,630,535) $ (2,215,260)
Net Loss Per Common Share
(1.54)
(0.94)
Net Loss Per Diluted Share
(1.54)
(0.94)
The Notes to Financial Statements are an integral part of these statements.
5
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2009 AND 2008
THE FREEDOM BANK OF VIRGINIA
Shares
Additional
Comprehensive
of Common
Common
Stock
Stock
Paid-In
Capital
Income
(Deficit)
Retained
Earnings
(Deficit)
Total
Stockholders'
Equity
Accumulated
Other
Balance, December 31, 2007
2,357,361
$ 11,786,805
$ 15,980,422
$ 45,808
$ (2,928,528)
$ 24,884,507
Comprehensive Income (Loss):
Net Loss
Change in unrealized gain
(loss) on securities
available- for-sale,
net of tax of $7,585
Total Comprehensive Income
(Loss)
Stock based compensation
-
-
-
-
-
-
(2,215,260)
(2,215,260)
-
-
14,086
-
14,086
-
21,991
-
-
21,991
(2,201,174)
Balance, December 31, 2008
2,357,361
11,786,805
16,002,413
59,894
(5,143,788)
22,705,324
Comprehensive Income (Loss):
Net Loss
Change in unrealized gain
(loss) on securities
available- for-sale,
net of tax of $8,486
Total Comprehensive Income
(Loss)
-
-
-
-
-
(3,630,535)
(3,630,535)
-
-
(15,761)
-
(15,761)
(3,646,296)
Balance, December 31, 2009
2,357,361
$ 11,786,805
$ 16,002,413
$ 44,133
$ (8,774,323)
$ 19,059,028
6
The Notes to Financial Statements are an integral part of these statements.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2009 AND 2008
Cash Flows from Operating Activities
Net loss
Noncash items included in net loss
Depreciation and amortization
Provision for possible loan losses
Net amortization (accretion) of securities
Stock-based compensation expense
Gain on other real estate
(Increase) Decrease in
Accrued interest receivable
Other assets
Increase (Decrease) in
Other accrued expenses
Accrued interest payable
Net Cash Used by Operating Activities
Cash Flows from Investing Activities
Federal funds sold, net
Loan originations, net
Purchase of available-for-sale securities
Purchase of held-to-maturity securities
Maturities, calls and paydowns of securities available-for-sale
Paydowns of held-to-maturity securities
Purchase of Federal Reserve Bank stock
Proceeds from sale of other real estate
Proceeds from redemption of Federal Reserve Bank stock
Acquisition of bank equipment
Net Cash Used by Investing Activities
THE FREEDOM BANK OF VIRGINIA
2009
2008
$ (3,630,535) $ (2,215,260)
183,080
166,947
4,435,744
1,865,000
27,848 (21,126)
21,991
-
-
(462,621)
(64,965) (47,279)
(1,194,773) (79,293)
97,331
316,849
(112,073)
107,197
(517,579) (88,359)
663,000
(1,487,000)
(19,826,199) (54,739,248)
(3,935,363) (2,000,000)
(986,509)
-
9,470,126
1,836,526
873,900
3,092,694
-
(10,800)
-
2,250,833
167,200
35,350
(61,127) (216,754)
(15,823,236) (49,050,135)
Cash Flows from Financing Activities
Increase in deposits, net
Net Cash Provided by Financing Activities
16,531,342 48,862,321
16,531,342 48,862,321
Net Increase (Decrease) in Cash and Due from Banks
190,527
(276,173)
Cash and Due from Banks, beginning of year
1,184,600 1,460,773
Cash and Due from Banks, end of year
$ 1,375,127 $ 1,184,600
Noncash Investing Activity
Unrealized (loss) gain on securities available-for-sale, net
Transfer of loans to other real estate owned
$ (15,761) $ 14,086
$ 705,329
$ 1,082,883
Supplemental Information
Cash paid during the year for interest
$ 2,991,232
$ 3,190,019
Cash paid during the year for income taxes
$ - $ -
The Notes to Financial Statements are an integral part of these statements.
7
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
THE FREEDOM BANK OF VIRGINIA
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of The Freedom Bank of Virginia conform to generally
accepted accounting principles and reflect practices of the banking industry. The policies are
summarized below.
Nature of Operations
The Freedom Bank of Virginia (the Bank) is a state chartered bank and a member of the Federal
Reserve and is subject to the rules and regulations of the Virginia State Banking Commission, the
Federal Reserve and the Federal Deposit Insurance Corporation. The Bank provides banking
services at its branch offices in Vienna and Fairfax, Virginia, and serves customers primarily in the
Northern Virginia area. The Bank was in organization during the period January 27, 2000 through
July 22, 2001, and opened for business on July 23, 2001.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
The determination of the adequacy of the allowance for loan losses is based on estimates that are
particularly susceptible to significant changes in the economic environment and market conditions.
In connection with the determination of the estimated losses on loans, management obtains
independent appraisals for significant collateral.
Securities
Debt securities are classified as held-to-maturity when the Bank has the positive intent and ability to
hold the securities to maturity. Securities held-to-maturity are carried at amortized cost.
Debt securities not classified as held-to-maturity or trading securities are classified as available-for-
sale. Securities available-for-sale are carried at fair value with unrealized gains and losses reported
in other comprehensive income. Realized gains (losses) on securities available-for-sale are included
in other income (expense) and, when applicable, are reported as a reclassification adjustment, net of
tax, in other comprehensive income.
The amortization of premiums and accretion of discounts are recognized in interest income using
methods approximating the interest method over the period to maturity. Declines in the fair value
of individual held-to-maturity and available-for-sale securities below their cost that are deemed to
be other than temporary result in write-downs of the individual securities to their fair value. The
related write-downs are included in earnings as realized losses. Gains and losses on sales of
securities are recorded on the trade date and are determined using the specific-identification
method.
Federal Reserve Bank stock is considered a restricted investment security, is carried at cost and
evaluated annually for impairment.
8
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
Loans and Loan Fees
THE FREEDOM BANK OF VIRGINIA
Loans that management has the intent and ability to hold for the foreseeable future, or until maturity
or pay-off, generally are stated at the principal amount outstanding, less the allowance for loan
losses and net deferred loan fees. Interest on loans is generally computed using the simple interest
method.
Loan origination and commitment fees, as well as certain direct origination costs, are deferred and
amortized as a yield adjustment over the lives of the related loans using the interest method.
Amortization of deferred loan fees is discontinued when a loan is placed on non-accrual status.
The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is
90 days delinquent unless the credit is well secured and in process of collection. Other personal
loans are typically charged off no later than 180 days past due. In all cases, loans are placed on non-
accrual or charged off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on non-accrual or charged off is
reversed against interest income. The interest on these loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status
when all the principal and interest amounts contractually due are brought current and future
payments are reasonably assured.
Loans Held for Sale
Loans held for sale consist primarily of residential mortgage loans, which are secured by one-to-four
family residential real estate. Loans held for sale are carried at the lower of aggregate cost, net of
purchase discounts or premiums, deferred fees, and deferred origination costs, or fair value. The
Bank determines the fair value of loans held for sale using current secondary market prices for loans
with similar coupons, maturities and credit quality. The fair value of mortgage loans is subject to
change primarily due to changes in market interest rates. Loans held for sale totaled approximately
$390,000 and $487,000 as of December 31, 2009 and 2008, respectively, and are included in loans
receivable in the financial statements.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level that, in management’s judgment, is adequate to
absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on
management’s evaluation of the collectability of the loan portfolio, including the nature of the
portfolio, credit concentrations, trends in historical loss experience, specific impaired loans,
economic conditions, and other risks inherent in the portfolio. A loan is considered impaired when,
based on current information and events, it is probable that the Bank will be unable to collect the
scheduled payments of principal or interest when due, according to the contractual terms of the loan
agreement. Allowances for impaired loans are generally determined based on collateral values or
the present value of estimated cash flows. Although management uses available information to
recognize losses on loans, because of uncertainties associated with local economic conditions,
collateral values, and future cash flows on impaired loans, it is reasonably possible that a material
change could occur in the allowance for loan losses in the near term. However, the amount of the
change that is reasonably possible cannot be estimated. The allowance is increased by a provision
for loan losses, which is charged to expense and reduced by charge-offs, net of recoveries. Changes
in the allowance relating to impaired loans are charged or credited to the provision for loan losses.
Past due status is determined based on contractual terms.
9
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
Bank Premises and Equipment
THE FREEDOM BANK OF VIRGINIA
Bank premises and equipment are stated at cost, less accumulated depreciation and amortization.
Leasehold improvements are amortized over the shorter of the asset life or lease term using the
straight-line method. Furniture and equipment are depreciated over estimated useful lives of three
to seven years using the straight-line method. The Bank depreciates premises and equipment using
accelerated methods for income tax reporting.
Expenditures for maintenance, repairs and improvements that do not materially extend the useful
lives of bank premises and equipment are charged to earnings. When bank premises or equipment
is sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are
removed from the accounts, and the effect is reflected in current earnings.
Leases that meet certain specified criteria are accounted for as capital assets and liabilities, and those
not meeting the criteria are accounted for as operating leases.
Other Real Estate Owned
Real estate properties acquired through or in lieu of loan foreclosures are initially recorded at the fair
value less estimated selling cost at the date of foreclosure. Any write-downs based on the asset's fair
value at the date of acquisition are charged to the allowance for loan losses. After foreclosure,
valuations are periodically performed by management and property held for sale is carried at the
lower of the new cost basis or fair value less cost to sell. Impairment losses on property to be held
and used are measured as the amount by which the carrying amount of a property exceeds its fair
value. Costs of significant property improvements are capitalized, whereas costs relating to holding
property are expensed. The portion of interest costs relating to development of real estate is
capitalized. Valuations are periodically performed by management, and any subsequent write-
downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property
to the lower of its cost or fair value less cost to sell.
Other Assets
Included in other assets is approximately $1,207,000 of prepaid expense related to the required
prepayment of the FDIC premium through the fourth quarter of 2012.
Stockholders’ Equity
At December 31, 2009, warrants were outstanding and exercisable to purchase 232,089 shares of
common stock at $13.25 per share if exercised by January 15, 2015 and 44,899 shares of common
stock at $13.25 per share if exercised by February 16, 2015.
Comprehensive income (loss) represents all changes in equity that result from recognized
transactions and other economic events of the period. Other comprehensive income (loss) refers to
revenues, expenses, gains and losses that under accounting principles generally accepted in the
United States of America are included in comprehensive income but excluded from net income, such
as unrealized gains and losses on certain investments in debt and equity securities
10
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
Income Taxes
THE FREEDOM BANK OF VIRGINIA
Income taxes are provided for the tax effects of the transactions reported in the financial statements
and consist of taxes currently due plus deferred taxes related primarily to differences between the
basis of the net operating losses carry forward and allowance for loan losses. The deferred tax assets
and liabilities represent the future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets and
liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred
tax assets and liabilities are adjusted through the provision for income taxes.
At December 31, 2009 and 2008, a valuation allowance for the full amount of the gross deferred tax
asset was recorded because of the uncertainties of the amount of taxable income that will be
generated in future years.
The Bank has adopted the new accounting policy for uncertainty in income taxes on January 1, 2009.
The adoption of that guidance resulted in no change to the financial statements. As a result of this
new guidance, no interest and penalties have been recorded in the accompanying financial
statements related to uncertain tax positions. The Bank files an income tax return in the U.S. Federal
jurisdiction. The Bank pays state franchise tax in lieu of state income taxes. Currently, the 2008, 2007
and 2006 income tax returns are open and subject to examination. The Bank is not currently under
audit by any income tax jurisdictions. As of December 31, 2009, the Bank had no uncertain tax
positions that qualify for either recognition or disclosure in the financial statements.
Earnings per Share (EPS)
Basic EPS excludes dilution and is computed by dividing income available to common stockholders
by the weighted-average number of common shares outstanding for the year. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common stock that then
shared in the earnings of the Bank. The Bank does not have any contracts or options with a dilutive
effect; therefore, basic EPS and diluted EPS are equal.
Stock-Based Compensation
The Bank recognizes the cost of employee services received in exchange for an award of equity
instruments in the financial statements over the period the employee is required to perform the
services in exchange for the award (presumptively the vesting period). The Bank also measures the
cost of employee services received in exchange for an award based on the grant-date fair value of the
award.
Employment Contracts
In January 2007, the Bank entered into an employment agreement with the Bank’s President. The
agreement provides for a base salary, a performance bonus, annual adjustments to compensation
and other benefits. The agreement has an initial term of three years and shall be automatically
renewed for successive 12 month terms until employment is terminated under specific conditions as
provided in the agreement.
The Bank has also entered into employment agreements with certain other key employees. The
agreements provide for base salary, performance bonuses, and other benefits. The terms of the
agreements range from one to two years with options to extend for additional one year periods until
employment is terminated under specific conditions as provided in the agreements.
11
THE FREEDOM BANK OF VIRGINIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
Statements of Cash Flows
The Bank considers all cash and amounts due from depository institutions, excluding interest-
bearing deposits in other banks and Federal funds sold, to be cash equivalents for purposes of the
statements of cash flows. The Freedom Bank of Virginia periodically has bank deposits including
short-term investments in excess of Federally insured limits.
Off-Balance Sheet Credit Related Financial Instruments
In the ordinary course of business, the Bank has entered into commitments to extend credit,
including commitments under credit card arrangements, commercial letters of credit, and standby
letters of credit. Such financial instruments are recorded when they are funded.
Subsequent Events
The date to which events occurring after December 31, 2009, the date of the most recent balance
sheet, have been evaluated for possible adjustment to the financial statements or disclosure is
March 4, 2010, which is the date on which the financial statements were issued.
2. RESTRICTION OF CASH AND DUE FROM BANKS
The Bank is required to maintain reserve funds in cash or on deposit with the Federal Reserve Bank.
The required reserve at December 31, 2009 and 2008 was $606,000 and $464,000, respectively.
3. SECURITIES AVAILABLE-FOR-SALE AND HELD-TO-MATURITY
The amortized cost and fair values of securities as shown in the balance sheets of the Bank are as
follows:
Amortized
Costs
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
December 31, 2009
Available-for-sale
U.S. Government and
Agency securities
Corporate securities
Mortgage backed securities
Total Available-for-sale
Held-to-maturity
Mortgage backed securities
$ 1,000,000
1,587,528
1,976,176
4,563,704
$ 62,870
56,006
-
118,876
$ -
-
(50,978)
(50,978)
$ 1,062,870
1,643,534
1,925,198
4,631,602
4,032,860
96,122
-
4,128,982
Total Investment Securities $ 8,596,564
$ 214,998
$ (50,978)
$ 8,760,584
December 31, 2008
Available-for-sale
U.S. Government and
Agency securities
Held-to-maturity
Mortgage backed securities
$ 2,500,000
$ 92,145
$ -
$ 2,592,145
7,118,270
79,480
(3,862)
7,193,888
Total Investment Securities
$ 9,618,270
$ 171,625
$ (3,862)
$ 9,786,033
12
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
THE FREEDOM BANK OF VIRGINIA
The amortized cost and estimated fair value of debt securities at December 31, 2009, by contractual
maturity, are as follows:
Amounts maturing in:
1 year or less
After 1 year - 5 years
After 5 years - 10 years
After 10 years
Mortgage backed securities
Available-for-sale
Held-to-maturity
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
$ 723,197
1,864,331
-
-
2,587,528
1,976,176
$ 4,563,704
$ 741,369
1,965,035
-
-
2,706,404
1,925,198
$ 4,631,602
$ - $ -
-
-
-
-
4,128,982
$ 4,128,982
-
-
-
-
4,032,860
$ 4,032,860
Expected maturities will differ from contractual maturities because issuers may have the right to call
or prepay obligations with or without call or prepayment penalties.
At December 31, 2009 and 2008, U.S. Government obligations with a carrying value of $4,626,677 and
$500,000, respectively, were pledged to secure public deposits and for other purposes required or
permitted by law.
Information pertaining to securities with gross unrealized losses at December 31, 2009, aggregated
by investment category and length of time that individual securities have been in a continuous loss
position, follows:
3
Available-for-sale
U.S. Government and
Agency securities
Corporate securities
Held-to-maturity
Mortgage backed securities
Less Than Twelve Months
Gross
Unrealized
Fair
Losses
Value
Over Twelve Months
Gross
Unrealized
Losses
Fair
Value
$ 55,164 $ 934,492
$ - $ -
$ - $ -
$ - $ -
$ - $ -
$ - $ -
Management evaluates securities for other-than-temporary impairment on at least a quarterly basis,
and, more frequently when economic or market concerns warrant such evaluation. Consideration is
given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the
financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Bank to
retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery
in fair value.
13
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
THE FREEDOM BANK OF VIRGINIA
At December 31, 2009, the one debt security with an unrealized loss depreciated six percent from the
Bank amortized cost basis. The security is either guaranteed by the U.S. Government or secured by
mortgage loans. These unrealized losses relate principally to current interest rates for similar types
of securities. In analyzing an issuer’s financial condition, management considers whether the
securities are issued by the Federal government or its agencies, whether downgrades by bond rating
agencies have occurred, and the results of reviews of the issuer’s financial condition. As
management has the ability to hold debt securities until maturity, or for the foreseeable future if
classified as available-for-sale, management feels that the unrealized losses on the security is not
deemed to be other-than-temporary.
4. LOANS RECEIVABLE
Loans receivable include the following:
Commercial
Consumer and other
Loans held for sale
Real estate
Subtotal
Deferred loan fees
Totals
2009
$ 36,190,011
2,948,806
390,300
96,152,302
135,681,419
(281,333)
$ 135,400,086
2008
$ 29,802,719
3,579,584
487,264
87,923,971
121,793,538
(332,053)
$ 121,461,485
An analysis of the allowance for possible loan losses is as follows:
Balance, beginning of period
Provision for loan losses
Loans charged to reserve
Recoveries credited to reserve
Totals
2009
$ 2,276,824
4,435,744
(4,969,969)
165,254
$ 1,907,853
2008
$ 681,789
1,865,000
(272,102)
2,137
$ 2,276,824
At December 31, 2009, the total recorded investment in loans on nonaccrual amounted to
approximately $4,271,000. There were no loans past due 90 days or more and still accruing interest.
At December 31, 2008, the total recorded investment in loans on nonaccrual amounted to
approximately $848,000 and the total recorded investment in loans past due 90 days or more and still
accruing interest amounted to approximately $650,000. At December 31, 2009 and 2008, the total
recorded investment in impaired loans, all of which had allowances determined in accordance with
GAAP, amounted to approximately $4,314,000 and $5,202,000, respectively. The average recorded
investment in impaired loans amounted to approximately $4,758,000 and $2,901,000 for the years
ended December 31, 2009 and 2008, respectively. The allowance for loan losses related to impaired
loans amounted to approximately $278,000 and $1,238,000 at December 31, 2009 and 2008,
respectively. Interest income on impaired loans of approximately $95,000 was recognized for cash
payments received in 2009.
14
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
THE FREEDOM BANK OF VIRGINIA
The Bank has entered into transactions with certain directors, executive officers, significant
stockholders, and their affiliates. Such transactions were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with other customers, and did not, in the
opinion of management, involve more than normal credit risk or present other unfavorable features.
The aggregate amount of loans outstanding to such related parties was $5,181,156 and $3,503,881 at
December 31, 2009 and 2008, respectively. New loans made to such related parties including loans
held by new directors, amounted to $3,204,473 and $1,292,089 and payments amounted to $1,527,198
and $822,345 at December 31, 2009 and 2008, respectively.
5. BANK PREMISES AND EQUIPMENT
Bank premises and equipment include the following:
Furniture and equipment
Leasehold improvements
Software
Total Cost
Less accumulated depreciation
Net Bank Premises and Equipment
2009
$ 1,064,625
130,959
300,562
1,496,146
(1,066,318)
$ 429,828
2008
$ 1,041,675
130,959
262,385
1,435,019
(899,371)
$ 535,648
Depreciation of bank premises and equipment charged to expense amounted to $166,947 and
$183,080 in 2009 and 2008, respectively.
6. DEPOSITS
Time deposits in denominations of $100,000 or more totaled $59,202,651 and $33,232,793 at
December 31, 2009 and 2008, respectively.
At December 31, 2009, the following are time deposits maturing in years ending December 31:
2010
2011
2012
2013
2014 and thereafter
$ 63,346,503
22,417,550
5,285,064
1,088,684
578,683
$ 92,716,484
The Bank held related party deposits of approximately $4,602,158 and $3,976,041 at December 31,
2009 and 2008, respectively.
7. BORROWINGS
At December 31, 2009, the Bank had $2,100,000 available under a line of credit Fed Funds facility to
be used for temporary, short-term needs with borrowing not to exceed seven consecutive business
days. There were no borrowings on this line at December 31, 2009 and 2008.
At December 31, 2009, the Bank had an additional $4,000,000 available under a line of credit Fed
Funds facility to be used for temporary, short-term needs with borrowings not to exceed
30 consecutive calendar days. There were no borrowings on this line at December 31, 2009.
15
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
8. INCOME TAXES
THE FREEDOM BANK OF VIRGINIA
The provision for income taxes consists of the following at December 31:
Current benefit
Deferred benefit
2009
$ -
-
$ -
2008
$ -
-
$ -
Net deferred tax assets are comprised of the following at December 31:
Deferred Source
Net operating loss carryforward
Loan loss reserve
Other
Unearned loan fees
Depreciation
Gross deferred tax assets
Allowance
Net deferred tax asset
2009
$ 1,784,000
1,104,000
12,000
96,000
(26,000)
2,970,000
(2,970,000)
$ -
2008
$ 930,000
728,000
26,000
113,000
(28,000)
1,769,000
(1,769,000)
$ -
The Bank has net operating losses carried forward of approximately $5,247,000 at December 31, 2009,
which start to expire in 2021.
9. CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered by the Federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a direct material effect
on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital guidelines that involve
quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank’s capital amounts and classification under the
prompt corrective action guidelines are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to
maintain minimum amounts and ratios of: total risk-based capital and Tier 1 capital to risk-weighted
assets (as defined in the regulations), and Tier 1 capital to adjusted total assets (as defined).
Management believes, as of December 31, 2009, that the Bank meets all the capital adequacy
requirements to which it is subject.
As of December 31, 2009, the Bank was categorized as well capitalized under the regulatory
framework for prompt corrective action. To remain categorized as well capitalized, the Bank will
have to maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as disclosed
in the table below. There are no conditions or events since the most recent notification that
management believes have changed the Bank’s prompt corrective action category.
16
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
THE FREEDOM BANK OF VIRGINIA
The Bank’s actual capital amounts and ratios as of December 31, 2009 and 2008 are as follows:
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Ratio
Amount
Minimum to be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount
Ratio
December 31, 2009:
Total Capital
(to Risk Weighted
Assets)
Tier 1 Capital
(to Risk Weighted
Assets)
$ 19,059,025
13.70%
$ 11,129,360 8.00%
$ 13,911,700 10.00%
$ 19,014,892
13.67%
$ 5,564,680 4.00%
$ 8,347,020 6.00%
Tier 1 Capital
(to Average Assets) $ 19,014,892
12.67%
$ 6,002,702 4.00%
$ 7,503,377 5.00%
December 31, 2008:
Total Capital
(to Risk Weighted
Assets)
Tier 1 Capital
(to Risk Weighted
Assets)
$ 22,705,324
17.96%
$ 10,112,000 8.00%
$ 12,640,000 10.00%
$ 22,645,429
17.92%
$ 5,056,000 4.00%
$ 7,584,000 6.00%
Tier 1 Capital
(to Average Assets) $ 22,645,429
17.38%
$ 5,212,973 4.00%
$ 6,516,216 5.00%
10. STOCK OPTION PLAN
In 2007, the Bank established the 2007 stock option and equity plan (the Plan) for executives, other
employees, officers, directors, and consultants. Shares under the Plan may be granted at not less
than 100 percent of the fair market value at the grant date. The authorized and granted options
under the Plan is as follows:
2007 Plan
Authorized
250,000
Granted
99,400
The stock options shall not be exercisable more than ten years after the date such option is granted.
The 2007 shares are vested as of December 31, 2009.
17
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
The following summarizes the option activity under the Stock Option Plan:
THE FREEDOM BANK OF VIRGINIA
Outstanding, December 31, 2007
Grants
Exercised
Canceled or expired
Outstanding, December 31, 2008
Grants
Exercised
Canceled or expired
Outstanding, December 31, 2009
Number of
Shares
79,878
19,522
-
-
99,400
-
-
-
99,400
Option Price
Per Share
$ 14.65
14.65
-
-
14.65
-
-
-
$ 14.65
Weighted
Average
Exercise Price
$ 14.65
14.65
-
-
-
-
-
-
$ 14.65
The weighted average fair value of options granted during the year ended December 31, 2008 was
$1.71. The weighted average remaining contractual life of options outstanding as of December 31,
2009 is 7.5 years.
Stock-based compensation cost is measured at the grant date based on the fair value of the award
and is recognized as expense on a straight-line basis over the requisite service period, which is the
vesting period. The Bank uses the Black-Scholes option pricing model to determine the fair value of
stock options. The fair value of the stock based payment awards is affected by the price of our stock
and a number of financial assumptions and variables. These variables include the risk free interest
rate, expected dividend rate, expected stock price volatility and the expected life of the options. The
following assumptions were used: a risk free interest rate of 4.5 percent, an estimated dividend yield
of zero percent, an expected holding period of five years and volatility of 10 percent.
The expected volatility is based on the historical volatility of peer institutions. The risk-free interest
rate is the implied yield available on U.S. Treasury zero-coupon issues with a remaining term equal
to the expected term of the options granted. The expected life is based on the average of the
contracted life and vesting schedule for the options granted. The dividend yield assumption is
based on expected dividend payouts.
Beginning in January 2010, directors will be compensated for attendance at board and committee
meetings using Bank common stock. Stock will only be awarded in quarters in which the Bank is
profitable, and stock will be issued annually.
For the year ended December 31, 2008, the Bank recognized stock-based compensation expense of
$21,991. No compensation expense was recognized for the year ended December 31, 2009.
11. OPERATING LEASES
In May 2008, the Bank entered into a lease for its loan operations to move from the fifth floor to the
second floor at 10555 Main Street, in Fairfax, Virginia. The agreement provides for an initial lease
term of approximately three years commencing July 1, 2008 and ending July 31, 2011. Total base
annual lease payments are $162,608 for the first year, increasing three percent per annum, thereafter.
The lease agreement is for 6,072 square feet. The lease provides the right to renew for two periods of
three additional years with the base rent at the current market rate. The agreement includes
additional rent payments based on a pro rata portion of annual taxes, common area maintenance
charges, and utilities.
18
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
THE FREEDOM BANK OF VIRGINIA
In December 2005, the Bank exercised its five-year option for the branch facility located at 502 Maple
Avenue in Vienna, Virginia. The agreement provides for a term of five years ending December 2010.
The total base annual lease payments for the first year of the extension are $62,668, increasing a
maximum of four percent per annum, thereafter. The lease agreement includes approximately
1,862 square feet on the ground floor for the branch facility. The lease agreement includes additional
rent payments based on a pro rata portion of annual taxes and common area maintenance charges.
In October 2004, the Bank entered into a lease for its headquarters and an additional branch facility
at 10555 Main Street in Fairfax, Virginia. The agreement provides for an initial lease term of ten years
commencing January 1, 2005 and ending December 31, 2014. Total base annual lease payments are
$168,056 for the first year, increasing a maximum of three percent per annum, thereafter. The lease
agreement is for 6,002 square feet. The agreement includes additional rent payments based on a
pro rata portion of annual taxes, common area maintenance charges, and utilities.
The following are the future minimum lease payments at December 31, 2009:
Years ending December 31:
2010
2011
2012
2013
2014
$ 434,874
295,868
214,568
221,005
227,635
$ 1,393,950
Rent expense amounted to $440,149 and $388,716 for the years ended December 31, 2009 and 2008,
respectively.
12. FAIR VALUE MEASUREMENTS
The Bank adopted the Fair Value Measurements required by the Fair Value Measurements and
Disclosures of the FASB Accounting Standards Codification. The "Fair Value Measurements"
standard defines fair value, establishes a framework for measuring fair value, and expands
disclosures about fair value measurements.
The standard defines fair value as the price that would be received upon sale of an asset or paid
upon transfer of a liability in an orderly transaction between market participants at the measurement
date and in the principal or most advantageous market for that asset or liability. The fair value
should be calculated based on assumptions that market participants would use in pricing the asset
or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should
include consideration of non-performance risk including our own credit risk.
In addition to defining fair value, the standard expands the disclosure requirements around fair
value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs
into three levels based on the extent to which inputs used in measuring fair value are observable in
the market. Each fair value measurement is reported in one of the three levels which is determined
by the lowest level input that is significant to the fair value measurement in its entirety. These levels
are:
Level 1 – inputs are based upon unadjusted quoted prices for identical instruments traded in active
markets.
19
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
THE FREEDOM BANK OF VIRGINIA
Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted
prices for identical or similar instruments in markets that are not active, and model-based valuation
techniques for which all significant assumptions are observable in the market or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
Level 3 – inputs are generally unobservable and typically reflect management’s estimates of
assumptions that market participants would use in pricing the asset or liability. Therefore, the fair
values are determined using model-based techniques that include option pricing models, discounted
cash flow models, and similar techniques.
The following describes the valuation techniques used by the Bank to measure certain financial
assets and liabilities recorded at fair value on a recurring basis in the financial statements.
Securities available-for-sale: Securities available-for-sale are recorded at fair value on a
recurring basis. Fair value measurement is based upon quoted market prices, when available
(Level 1). If quoted market prices are not available, fair values are measured utilizing
independent valuation techniques of identical or similar securities for which significant
assumptions are derived primarily from or corroborated by observable market data. Third
party vendors compile prices from various sources and may determine the fair value of
identical or similar securities by using pricing models that considers observable market data
(Level 2).
The following table presents the balances of financial assets and liabilities measured at fair value on
a recurring basis as of December 31, 2009:
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
$ 4,631,602
$ 1,643,534
$ 2,988,068
$ -
$ 2,592,145
$ -
$ 2,592,145
$ -
December 31, 2009
Available-for-sale securities
December 31, 2008
Available-for-sale securities
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with
GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-
cost-or-market accounting or write-downs of individual assets.
20
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
THE FREEDOM BANK OF VIRGINIA
The following describes the valuation techniques used by the Bank to measure certain financial
assets recorded at fair value on a nonrecurring basis in the financial statements.
Impaired loans: Loans are designated as impaired when, in the judgment of management
based on current information and events, it is probable that all amounts due according to the
contractual terms of the loan agreement will not be collected. The measurement of loss
associated with impaired loans can be based on either the observable market price of the
loan or the fair value of the collateral. Fair value is measured based on the value of the
collateral securing the loans. Collateral may be in the form of real estate or business assets
including equipment, inventory and accounts receivable. The vast majority of the collateral
is real estate. The value of real estate collateral is determined utilizing an income or market
valuation approach based on an appraisal conducted by an independent, licensed appraiser
outside of the Bank using observable market data (Level 2). However, if the collateral is a
house or building in the process of construction or if an appraisal of the real estate property
is over two years old, then the fair value is considered (Level 3). The value of business
equipment is based upon an outside appraisal if deemed significant, or the net book value
on the applicable business’ financial statements if not considered significant using
observable market data. Likewise, values for inventory and accounts receivables collateral
are based on financial statement balances or aging reports (Level 3). Impaired loans
allocated to the allowance for loan losses are measured at fair value on a nonrecurring basis.
Any fair value adjustments are recorded in the period incurred as provision for loan losses
on the statements of operations.
The following table summarizes the Bank’s financial assets that were measured at fair value on a
nonrecurring basis as of December 31:
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
$ 4,314,000
$ -
$ 4,036,000
$ 278,000
$ 5,202,000
$ -
$ 3,964,000
$ 1,238,000
December 31, 2009
Impaired loans
December 31, 2008
Impaired loans
Foreclosed assets
$ 705,000
$ -
$ 705,000
$ -
The following methods and assumptions were used by the Bank in estimating fair values of financial
instruments as disclosed herein:
Cash and cash equivalent: The carrying amounts of cash and cash equivalents approximate their
fair value.
Securities available-for-sale: Fair values for securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on quoted market
prices of comparable instruments.
21
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
THE FREEDOM BANK OF VIRGINIA
Interest bearing deposits at other financial institutions: The carrying amounts of interest bearing
deposits at other financial institutions payable on demand, consisting of money market deposits,
approximate fair value. Fair value of fixed rate certificates of deposit is estimated based on
discounted cash flow analyses using the remaining maturity of the underlying accounts and
interest rates currently offered on certificates of deposit with similar original maturities.
Restricted stock: The carrying amount of Federal Reserve Bank stock and Federal Home Loan
Bank stock approximates fair value.
Loans receivable: For variable-rate loans that reprice frequently and have no significant change in
credit risk, fair values are based on carrying values. Fair values for certain mortgage loans (for
example, one to four family residential), credit-card loans and other consumer loans are based
on quoted market prices of similar loans sold in conjunction with securitization transactions,
adjusted for differences in loan characteristics. Fair values for business real estate and business
loans are estimated using a discounted cash flow analyses, using interest rates currently being
offered for loans with similar term to borrowers of similar credit quality. Fair values for
impaired loans are estimated using discounted cash flows analyses or underlying collateral
values, where applicable.
Accrued interest: The carrying amounts of accrued interest approximate fair value.
Deposits: The carrying amounts of deposit liabilities payable on demand, consisting of NOW
accounts, money market deposits and saving deposits approximate fair value. Fair value of
fixed-rate certificates of deposit is estimated based on discounted cash flow analyses using the
remaining maturity of the underlying accounts and interest rates currently offered on certificates
of deposit with similar original maturities.
Off balance sheet financial instruments: At December 31, 2009 and 2008, the fair values of loan
commitments and standby letters of credit are immaterial. Therefore, they have not been
included in the following table.
The estimated fair values of the Bank’s financial instruments are as follows at December 31:
Financial assets:
Cash and cash equivalents
Securities available-for-sale
Restricted stock
Loans receivable, net
Accrued interest receivable
Total financial assets
Financial liabilities:
Interest, money market and
savings
Time Deposits
Accrued interest payable
Total financial liabilities
2009
Carrying
Amount
Fair Value
2008
Carrying
Amount
Fair Value
$ 12,199,127
4,631,602
556,400
133,492,233
483,510
$ 151,362,872
$ 12,199,127
4,631,602
556,400
139,303,835
483,510
$ 157,174,474
$ 12,671,600
2,592,145
712,800
119,184,661
418,545
$ 135,579,751
$ 12,671,600
2,592,145
712,800
122,162,379
418,545
$ 138,557,469
$ 16,918,734
92,716,485
91,096
$ 109,726,315
$ 16,918,734
90,816,961
91,096
$ 107,826,791
$ 14,681,016
86,561,450
203,169
$ 101,445,635
$ 14,681,016
87,378,155
203,169
$ 102,262,340
22
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
THE FREEDOM BANK OF VIRGINIA
In the normal course of business, the Bank has outstanding commitments and contingent liabilities,
such as commitments to extend credit and standby letters of credit, which are not included in the
accompanying financial statements.
The Bank’s exposure to credit loss in the event of
nonperformance by the other party to the financial instruments for commitments to extend credit
and standby letters of credit is represented by the contractual or notional amount of those
instruments. The Bank uses the same credit policies in making such commitments as it does for
instruments that are included in the balance sheet.
Financial instruments whose contract amount represents credit risk were as follows:
Commitments to extend credit
Standby letters of credit
2009
$ 30,513,443
$ 148,202
2008
$ 38,161,150
$ 391,184
Commitments to extend credit are agreements to lend to a customer as long as there is no violation
of any condition established in the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-
by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management’s credit evaluation. Collateral held varies, but may include accounts
receivable, inventory, property and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Standby letters of credit generally have fixed expiration
dates or other termination clauses and may require payment of a fee. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending loan facilities to
customers. The Bank’s policy for obtaining collateral, and the nature of such collateral, is essentially
the same as that involved in making commitments to extend credit.
The Bank has not been required to perform on any financial guarantees during the past two years.
The Bank has not incurred any losses on its commitments in either 2009 or 2008.
14. RESTRICTION ON DIVIDENDS
The Bank is subject to certain restrictions on the amount of dividends that it may pay without prior
regulatory approval. At December 31, 2009 and 2008, capital was not available for payment of
dividends.
15. PROFIT SHARING PLAN
Effective July 1, 2002, the Bank adopted a contributory 401(k) savings plan covering substantially all
employees. The plan allows eligible employees to contribute up to 25 percent of their compensation
to the plan. The Board of Directors may elect to approve to match a portion of each employee’s
contribution. No contributions were made by the Bank for the years ended December 31, 2009 and
2008.
23
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
16. LEGAL CONTINGENCIES
THE FREEDOM BANK OF VIRGINIA
In 2007, the Bank made a loan to a borrower and sold a participation in the loan to Monarch Bank.
The loan matured on March 1, 2009, and has not been repaid. The participation agreement provides
that the Bank will exercise normal mortgage lending practices in administering the loan. There is a
disagreement between the two banks on how best to collect and service the loan. Monarch Bank
filed an action against the Bank on June 3, 2009 in the Circuit Court of the City of Chesapeake, VA,
alleging that the Bank has failed to properly service and collect the loan. Monarch Bank is seeking
$2.19 million in actual damages, plus $350,000 in punitive damages as well as attorney’s fees and
costs. The Bank intends to defend this action and cannot, at this time, reasonably predict the
ultimate outcome of the proceedings, if any, that will be imposed. The trial is currently scheduled
for May 2010.
Various legal claims can arise from time to time in the normal course of business which, in the
opinion of management, will have no material effect on the Bank’s financial statements.
24
THE FREEDOM BANK OF VIRGINIA
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
BOARD OF DIRECTORS
Richard C. Litman
Chairman of the Board
William G. Dukas
Vice Chairman
Cynthia Carter Atwater
Corporate Secretary
John T. Rohrback
President & CEO
G. Thomas Collins, Jr.
Dr. Terry L. Collins
H. Jason Gold
Norman P. Horn
Dr. David C. Karlgaard
Michael A. Miranda
Dr. Alvin E. Nashman
IN MEMORIAM
Russell E. Sherman
Director
2007-2009
SENIOR MANAGEMENT
John T. Rohrback
President & CEO
Karin M. Johns
Executive Vice President
& Chief Financial Officer
Craig S. Underhill
Executive Vice President
& Chief Lending Officer
Deborah A. Free
Senior Vice President
& Branch Administration Officer
Christine A. Gorman
Senior Vice President
& Assistant Corporate Secretary
Kimberly J. Ryman
Senior Vice President
& Senior Administration & Information Officer
25
DIRECTORS EMERITUS, ADVISORY BOARD & GOVERNEMENT CONTRACTING COUNCIL
THE FREEDOM BANK OF VIRGINIA
WITH DEEPEST APPRECIATION FOR THE
DIRECTORS WHO PREVIOUSLY SERVED
James N. Newsome
Founding Chairman & CEO
2000 - 2003
Director Emeritus
John F. Carman
Founding Director / Vice Chairman
2000 - 2006
In Memoriam
Richard L. Hall
Founding Director / President & COO
2000 - 2003
In Memoriam
Irving Bernstein
Founding Director
2000 - 2007
Director Emeritus
Darren Bernstein
Irving Bernstein
William C. Bogart
Louis M. Cocks, Jr.
Jimmy B. Contristan
John R. Herbert
Timothy P. Hecht
Michael J. Kurka
David C. Knapp
George C. Dukas
Director
2002 - 2005
Director Emeritus
Michael A. Falke
Founding Director
2000 - 2002
Timothy P. Hecht
Director
2005 - 2007
Director Emeritus
George Z. Kontzias
Director
2002 - 2006
Director Emeritus
ADVISORY BOARD
Arlene Lyles Pripeton, Chairman
Michael A. Magnotti
Donald J. Mayer
Owen Michael McCall
Stephen W. McCarthy
Usama H. Misleh
Ali R. Oskuie
Thomas J. Riley
Harry N. Snyder, O.D.
Harry N. Snyder, O.D.
Founding Director
2000 - 2007
Director Emeritus
James F. Steffey
Founding Director
2000 - 2007
Director Emeritus
C. Stephen Templeton
Founding Director
2000 - 2002
Director Emeritus
Charles M. Wright
Founding Director
2000 - 2002
Director Emeritus
James F. Steffey
Michael J. Sullivan
C. Stephen Templeton
Thomas J. Tracy
Stephen M. Turner
Robert G. Williams
Charles M. Wright
Theodore A. Yiannarakis
26
OFFICERS & STAFF
THE FREEDOM BANK OF VIRGINIA
COMMERCIAL LENDING
Craig S. Underhill
EVP & Chief Lending Officer
cunderhill@freedombankva.com
Jeremiah D. Behan
SVP & Real Estate Lending Officer
jbehan@freedombankva.com
Henry L. Finch
SVP & Relationship Management Officer
hfinch@freedombankva.com
Gregory L. Montgomery
SVP & Government Contracting Officer
gmontgomery@freedombankva.com
Michael J. Underwood
SVP & Relationship Management Officer
munderwood@freedombankva.com
Paula A. Newsome
VP & Relationship Management Officer
pnewsome@freedombankva.com
Sally T. Siveroni
VP & Portfolio Management Officer
ssiveroni@freedombankva.com
LOAN ADMINISTRATION
Kimberly J. Ryman
SVP & Senior Administration & Information Officer
kdawson@freedombankva.com
Kevin P. Mullins
AVP & Loan Administration Officer
kmullins@freedombankva.com
Alicia G. Bez
Loan Clerk
abez@freedombankva.com
Connie L. Maness
Loan Document Specialist
cmaness@freedombankva.com
Allison Leigh Carey
Mortgage Loan Processor
lcarey@freedombankva.com
MORTGAGE LOAN
George J. Decker
VP & Mortgage Loan Originator
gdecker@freedombankva.com
Fredric V. Wilson
Mortgage Loan Originator
fwilson@freedombankva.com
OPERATIONS
William T. Rogers
Mortgage Loan Originator
brogers@freedombankva.com
Jeri L. Leddon
AVP & Operations Officer
jleddon@freedombankva.com
Karin M. Johns
EVP & Chief Financial Officer
kjohns@freedombankva.com
Thyda Price
VP & BSA Risk Management Officer
tprice@freedombankva.com
27
OFFICERS & STAFF
THE FREEDOM BANK OF VIRGINIA
BRANCHES
Deborah A. Free
SVP & Branch Administration Officer
dafree@freedombankva.com
Veronika Cavero
Assistant Branch Manager - Fairfax
vcavero@freedombankva.com
Trilce Castillo
Branch Administrative Assistant - Fairfax
t1fairfax@freedombankva.com
Elizabeth Brown
Drive-Thru Teller - Fairfax
t2fairfax@freedombankva.com
Fares Hakim
Branch Officer - Vienna
fhakim@freedombankva.com
Hilda Alvarez
Branch Administrative Assistant - Vienna
halvarez@freedombankva.com
Jamesenna Lundy
Teller - Vienna
t1vienna@freedombankva.com
Harsha Patel
Teller - Vienna
t3vienna@freedombankva.com
HUMAN RESOURCES, MARKETING AND INVESTOR RELATIONS OFFICER
Christine A. Gorman
SVP & Assistant Corporate Secretary
cgorman@freedombankva.com
Ashley Reese
Administrative Assistant - Fairfax
areese@freedombankva.com
28
COMMERCIAL ACCOUNT SERVICES
THE FREEDOM BANK OF VIRGINIA
TRANSACTION ACCOUNTS
Business Checking
Not-For-Profit Organization Checking
Business / Corporate Analysis Account
Business Interest Checking
SAVINGS ACCOUNTS, INVESTMENT & FIDUCIARY SERVICES
Business Money Market
Business Savings
Certificates of Deposit
CDAR’S (Certificate of Deposit Account Registry Service)
Trustee Accounts
CASH MANAGEMENT SERVICES
Concentration Accounts
Lockbox Accounts
Merchant Accounts
Repurchase Agreement Accounts
Sweep Accounts
Sweep Account into a Collateralized Repurchase Agreement Accounts
Target Balance Accounts
Zero Balance Accounts
Wire Transfers
CREDIT SERVICES
Commercial Term Loans
Commercial Line of Credit
Commercial Revolving Line of Credit
Commercial Letters of Credit
Commercial Real Estate Mortgages
Commercial Construction Loans
Small Business Administration (SBA) Loans
MANAGING ACCOUNTS & FUNDS
24 Hour Depository
24 Hour Telephone Banking
ACH Transactions & File Transfers
American Express Travelers Cheques/Gift Cards
ATM
Bank by Mail
Cashier’s Checks & Money Orders
Corporate Credit Card – MasterCard
Corporate Debit Card
Electronic Check Processing & Deposit Program
E-Statements
Federal Tax Deposits
Freedom Direct Online Banking
Lock Box Service
Merchant Credit Card Services
Notary Services
Safe Deposit Boxes
29
PERSONAL ACCOUNT SERVICES
THE FREEDOM BANK OF VIRGINIA
TRANSACTION ACCOUNTS
Freedom Ba$ic (Free) Checking
Freedom Interest Checking
SAVINGS ACCOUNTS & INVESTMENT & FIDUCIARY SERVICES
Personal Money Market Checking
Regular Savings
Senior or Student or Minor Savings
Certificates of Deposit
CDAR’S (Certificate of Deposit Account Registry Service)
INDIVIDUAL RETIREMENT ACCOUNTS
Traditional
Roth
Coverdell (formerly Education IRA)
Simplified Employee Pensions (SEPS)
CREDIT SERVICES
Auto Loans
Boat & RV loans
Personal Loans
Overdraft Protection
Home Equity Loans & Lines of Credit
Mortgages
MANAGING ACCOUNTS & FUNDS
24 Hour Depository
24 Hour Telephone Banking
ACH Transactions/Direct Deposit
ATM
American Express Travelers Cheques/Gift Cards
Bank by Mail
Cashier’s Checks & Money Orders
Credit Cards – Visa & MasterCard
Debit Check Card
E-Statements
Identity Theft Protection
Notary Services
Online Banking with Bill Payment
Safe Deposit Boxes
U. S. Savings Bonds
Wire Transfers
30
THE FREEDOM BANK OF VIRGINIA
502 Maple Avenue West
Vienna, Virginia 22180
703-667-4170
10555 Main Street
Fairfax, Virginia 22030
703-242-5300
FREEDOM – 24
24 Hour Telephone Banking
1-877-236-1468
FREEDOM ONLINE BANKING
www.freedombankva.com
STOCK TRANSFRER AGENT
Computershare
P.O. Box 43078
Providence, Rhode Island 02940-3078
or
250 Royall Street
Canton, Massachusetts 02021
(800) 962-4284
www.computershare.com
Freedom Bank of Virginia
P.O. Box 4510, Fairfax, Virginia 22038-4510
703.242.5300
www.freedombankva.com