Freedom Bank of Virginia
Annual Report 2015

Plain-text annual report

2015 ANNUAL REPORT THE FREEDOM BANK OF VIRGINIA a letter to our SHAREHOLDERS Dear Shareholders, On behalf of our board of directors and management, we are pleased to present these results. Freedom Bank accomplished a number of achievements in 2015. For the past three years we grew total assets, loans and deposits faster than many banks in our peer group. In 2015 we began growing net profit at a rapid rate as well. We raised approximately $12 million in new capital through two capital raises and we have a commitment from a major investor to purchase $6 million of additional stock in the first quarter of 2016 following our annual meeting. Our mortgage division went from a net loss position in 2014 to contributing over $500 thousand dollars of net profit to the Bank in 2015. Finally, the Bank continued its trend of improving asset quality by further reducing non performing assets to only 0.06% of loans by year end. Below is a brief summary of results: OPERATIONS   The large increase to bottom line profitability started with a larger increase in top line revenue. Large increases in loans and investments increased total interest income to $16,901,078 in 2015, up 23.8% from $13,656,944 the prior year.   Interest paid on deposits increased approximately $738,374 or 32.6% to $3,006,299. The provision for loan losses increased $186,500 to $672,500 leaving net interest income after provision at $13,222,279 at December 31, 2015, up $2,319,260 (21.3%) from $10,903,019 the prior year.   Non-interest income rose $2,264,707 (404.0%) to $2,825,229 from increased mortgage banking activity.   Operating expenses increased from $9,863,143 in 2014 to $13,443,938. Much of the increase was additional salary expense necessary to support the Reston office for a full year and increased mortgage banking staff.   Increasing profitability required recognition of income tax expense for the first time in 2015. Net income before taxes was $2,603,570 with income tax expense of $885,000 leaving net income after taxes of $1,718,570. This was a 62.7% increase from net income before taxes of $1,600,398 earned in 2014.   Basic earnings per share were $0.40 versus $0.42 for 2014. The decline was due to the large increase in shares outstanding from the two capital campaigns in 2015. CONDITION   Total assets were $400,437,524 at December 31, 2015, up 16.9% from $342,611,644 the prior year.   Loans had the highest yield and increased $40,080,024 (14.4%) to $319,069,611 at December 31, 2015.   Securities held for sale, held to meet liquidity needs, were the second highest yielding asset increased $19,020,628 (69.7%) to $46,315,581. Together with fed funds of $15,000,000, interest bearing deposits of $1,028,248 and cash of $5,856,391 total liquidity was $68,200,220 or 17.0% of total assets at December 31, 2015. a letter to our SHAREHOLDERS   Asset quality continued improving. Non performing assets as a percentage of loans decreased from 0. 14% at December 31, 2014 to .06% at December 31, 2015. Loans past due for regularly scheduled payments were 0.28% of loans at December 31, 2015. Both compared very favorably with peer banks. While we were pleased with our positions at year end, both non performing assets and past due loans were higher at some point in the past year. We work diligently on asset quality as reflected in our results over the past three years.   Asset growth was funded by large increases in core deposits. Non interest bearing deposits were flat at $51,849,383 compared to $51,431,344 the prior year.   Interest checking deposits rose 33.7% from $65,959,271 at December 31, 2014 to $88,182,669 at December 31, 2015.   Certificates of deposit funded the balance rising only 8.0% to $206,959,651 at year end.   The Bank had $6,200,000 in borrowings from the Federal Home Loan Bank of Atlanta at December 31, 2015. The borrowings provided match funding for long term loans and inexpensive funding for held for sale mortgages.   Capital was $42,580,924 at December 31, 2015, up 43.0% from $29,769,220 at December 31, 2014. This was due to the Bank’s successful capital raising efforts. Freedom raised approximately $1,900,000 in a rights offer to shareholders in January 2015 and $10,000,000 before expenses in a private placement of common stock to institutional investors in December 2015. Net income for the year contributed the remaining rise in equity.   The capital raise provided strong capital ratios for the Bank. Regulatory capital minimums for Leverage Ratio, Risk Based Capital Tier 1, and Risk Based Capital Tier 2 were 5.0%, 8.0% and 10.0% respectively at year end. At December 31, 2015 the ratios for the Bank were 11.6%, 13.13%, and 14.09%, all above well capitalized levels.   Book value per share increased to $7.80 at December 31, 2015, up from $7.40 at December 31, 2014. The additional capital raised in 2015 will allow continued expansion in northern Virginia. We are excited about our prospects for 2016 and beyond and thank you for your continued support of Freedom Bank. CRAIG S. UNDERHILL President & CEO RICHARD C. LITMAN Chairman of the Board table of CONTENTS 1 2 2 4 5 6 7 9 Independent Auditors’ Report On The Financial Statements Financial Statements balance sheets statements of operations statements of comprehensive income statements of changes in stockholders’ equity statements of cash flows notes to financial statements 30 Shareholder & Company Information INDEPENDENT AUDITORS’ REPORT To the Board of Directors and Stockholders The Freedom Bank of Virginia Fairfax, Virginia We have audited the accompanying financial statements of The Freedom Bank of Virginia, which comprise the balance sheets as of December 31, 2015 and 2014, and the related statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for the years then ended, and the related notes to the financial statements. MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. AUDITORS’ RESPONSIBILITY 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 involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 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, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. THOMPSON GREENSPON Fairfax, Virginia February 2, 2016 1 REPORTSFREEDOM BANK OF VIRGINIAFINANCIAL STATEMENTS Balance Sheets Years Ended December 31 2015 AND 2014 ASSETS Cash and Due from Banks Interest Bearing Deposits with Banks Federal Funds Sold Securities Available-for-Sale Securities Held-to-Maturity Federal Reserve Bank Stock, at Cost Federal Home Loan Bank Stock, at Cost Community Bankers Bank Stock, at Cost Loans Held for Sale Loans Receivable Allowance for Possible Loan Losses Net Loans Bank Premises and Equipment, net Accrued Interest Receivable Deferred Tax Asset Bank-Owned Life Insurance Other Assets TOTAL ASSETS 2015 ($) 5,856,391 1,028,248 2014 ($) 4,917,099 1,024,155 15,000,000 24,837,000 46,315,581 27,294,953 — 964,650 571,900 66,000 5,610 829,200 274,800 — 7,634,844 649,975 319,069,610 278,989,586 (3,133,420) (2,685,807) 315,936,190 276,303,779 720,200 963,995 1,604,000 2,221,695 1,553,830 830,770 864,224 1,320,000 2,160,567 1,299,512 400,437,524 342,611,644 NOTE: The Notes to Financial Statements are an integral part of these statements. 2 FREEDOM BANK OF VIRGINIALIABILITIES Deposits Demand Deposits Non-interest Bearing Interest Bearing Savings Deposits Time Deposits Total Deposits FHLB Advances Other Accrued Expenses Accrued Interest Payable Total Liabilities STOCKHOLDERS’ EQUITY Common stock, $3.16 par value, 15,000,000 shares authorized: 5,455,820 Shares Issued and Outstanding, 2015; 4,025,349 Shares Issued and Outstanding, 2014; Additional Paid-in Capital Accumulated Other Comprehensive Income (loss), net Retained Earning (deficit) Total Stockholders’ Equity 2015 ($) 2014 ($) 51,849,383 51,431,344 88,182,669 65,959,271 2,573,038 2,637,231 206,959,651 191,660,138 349,564,741 311,687,984 6,200,000 1,994,642 97,216 — 1,062,136 92,304 357,856,599 312,842,424 17,227,330 12,707,042 24,282,805 17,457,152 (371,695) 1,442,485 (118,889) (276,085) 42,580,925 29,769,220 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 400,437,524 342,611,644 NOTE: The Notes to Financial Statements are an integral part of these statements. 3 FINANCIAL STATEMENTS Statements of Operations Years Ended December 31 2015 AND 2014 INTEREST INCOME Interest and Fees on Loans Interest on Investment Securities Interest on Federal Funds Sold Total interest income INTEREST EXPENSE Interest on Deposits Net Interest Income 2015 ($) 16,210,289 669,238 21,551 2014 ($) 13,098,078 535,438 23,428 16,901,078 13,656,944 3,006,299 2,267,925 13,894,779 11,389,019 PROVISION FOR POSSIBLE LOAN LOSSES 672,500 486,000 Net Interest Income After Provision for Possible Loan Losses 13,222,279 10,903,019 OTHER INCOME Gain on Sale of Mortgage Loans Service Charges and Other Income Increase in Cash Surrender Value of Bank-owned Life Insurance Total Other Income OPERATING EXPENSES 2,541,771 222,330 61,128 2,825,229 260,083 241,475 58,964 560,522 Officers and Employee Compensation and Benefits 8,583,258 5,974,486 Occupancy Expense Equipment and Depreciation Expense Insurance Expense Professional Fees Data and Item Processing Business Development Franchise Taxes Mortgage Fees and Settlements Other Operating Expenses Total Operating Expenses Income Before Income Taxes 839,671 450,820 291,362 885,601 921,846 189,117 310,396 424,460 547,407 622,690 370,921 237,421 844,756 816,954 185,868 260,048 80,105 469,894 13,443,938 9,863,143 2,603,570 1,600,398 NOTE: The Notes to Financial Statements are an integral part of these statements. 4 FREEDOM BANK OF VIRGINIA2015 ANNUAL REPORTINCOME TAX EXPENSE NET INCOME EARNINGS PER COMMON SHARE – BASIC EARNINGS PER COMMON SHARE – DILUTED WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING – BASIC WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING – DILUTED 2015 ($) 2014 ($) 885,000 — 1,718,570 1,600,398 0.40 0.39 0.42 0.40 4,336,225 3,833,821 4,392,932 3,978,880 Statements of Comprehensive Income Years Ended December 31 2015 AND 2014 Net Income Other Comprehensive Income (Loss): Unrealized holding gain (loss) arising during the year, net of tax expense of $161,562 in 2015 and tax benefit of $379,475 in 2014 2015 ($) 2014 ($) 1,718,570 1,600,398 (252,806) 300,043 COMPREHENSIVE INCOME 1,465,764 1,900,441 NOTE: The Notes to Financial Statements are an integral part of these statements. 5 FINANCIAL STATEMENTSFREEDOM BANK OF VIRGINIAStatements of Changes in Stockholders’ Equity Years Ended December 31 2015 AND 2014 SHARES OF COMMON STOCK ($) COMMON STOCK ($) ADDITIONAL PAID-IN CAPITAL ($) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) ($) RETAINED EARNINGS (DEFICIT) ($) TOTAL STOCKHOLDERS’ EQUITY ($) *3,468,149 12,042,200 16,371,940 (418,932) (1,876,483) 26,118,725 BALANCE (DEC. 31, 2013) Net Income Other Comprehensive Income Stock Warrants Exercised — — 73 — — 231 — — — 379 — Eleven-for-Ten Stock Split 346,807 Stock Options Exercised 23,260 73,501 66,794 Sale of Common Stock 187,060 591,110 1,009,781 Stock-based Compensation — — 8,258 BALANCE (DEC. 31, 2014) Net Income Other Comprehensive Loss Stock Warrants Exercised — — 75 — — 237 — — 399 Stock Options Exercised 9,212 29,110 30,740 Sale of Common Stock (Rights Offering) Sale of Common Stock (Private Placement) 244,713 773,293 1,120,364 1,176,471 3,717,648 5,618,784 Stock-based Compensation — — 55,366 — 1,600,398 1,600,398 300,043 — — — — — — — — — — — 300,043 610 — 140,295 1,600,891 8,258 — 1,718,570 1,718,570 (252,806) — — — — — — — — — — — (252,806) 636 59,850 1,893,657 9,336,432 55,366 4,025,349 12,707,042 17,457,152 (118,889) (276,085) 29,769,220 BALANCE (DEC. 31, 2015) 5,455,820 17,227,330 24,282,805 (371,695) 1,442,485 42,580,925 *Shares of common stock retroactively adjusted for the eleven-for-ten stock split effective April 1, 2014 is 3,814,956 as of December 31, 2013. NOTE: The Notes to Financial Statements are an integral part of these statements. 6 FREEDOM BANK OF VIRGINIA2015 ANNUAL REPORTStatements of Cash Flows Years Ended December 31 2015 AND 2014 CASH FLOWS FROM OPERATING ACTIVITIES 2015 ($) 2014 ($) Net Income 1,718,570 1,600,398 Non-Cash Items Included in Net Income Depreciation and Amortization Provision for Possible Loan Losses Net Amortization of Available-for-Sale Securities Gain on Sale of Available-for-Sale Securities Stock-based Compensation Expense Deferred Income Tax Benefit 233,790 672,500 311,811 (24,257) 55,366 167,795 486,000 202,071 (26,693) 8,258 (284,000) (461,000) Increase in Cash Surrender Value of Bank-Owned Life Insurance (61,128) (58,964) (Increase) Decrease in Loans Held for Sale Accrued Interest Receivable Other Assets Increase (Decrease) in Other Accrued Expenses Accrued Interest Payable (6,984,869) (99,771) (118,191) 932,506 4,912 118,925 (166,898) (126,789) 209,659 14,994 Net Cash Provided by Operating Activities (3,642,761) 1,967,756 CASH FLOWS FROM INVESTING ACTIVITIES Federal Funds Sold, net Interest Bearing Deposit with Banks Loan Originations, net Purchase of Available-for-Sale Securities Maturities, Calls and Paydowns of Securities Available-for-Sale Proceeds from Sales of Securities Available-for-Sale Purchase of FHLB Stock Paydowns of Held-to-Maturity Securities Purchase of Federal Reserve Bank Stock Purchase of Community Bankers Bank Stock Acquisition of Bank Equipment 9,837,000 (4,093) (8,020,000) (4,077) (40,304,911) (59,212,258) (27,118,247) (14,665,874) 5,798,614 1,622,518 5,107,507 6,289,860 (297,100) (274,800) 5,610 (135,450) (66,000) (123,220) 39,069 (51,200) — (706,188) Net Cash Used By Investing Activities (50,785,279) (71,497,961) NOTE: The Notes to Financial Statements are an integral part of these statements. 7 FINANCIAL STATEMENTSFREEDOM BANK OF VIRGINIA Statements of Cash Flows Years Ended December 31 2015 AND 2014 CASH FLOWS FROM FINANCING ACTIVITIES 2015 ($) 2014 ($) Increase in Deposits, net Advances from FHLB 37,876,757 64,534,437 6,200,000 — Proceeds From Stock Options and Warrants Exercised 60,486 140,905 Proceeds From Sale of Stock, net 11,230,089 1,600,891 Net Cash Provided by Financing Activities 55,367,332 66,276,233 NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 939,292 (3,253,972) CASH AND DUE FROM BANKS (BEGINNING OF YEAR) CASH AND DUE FROM BANKS (END OF YEAR) 4,917,099 8,171,071 5,856,391 4,917,099 NONCASH INVESTING ACTIVITY Unrealized (Loss) Gain on Securities Available-for-Sale, net (252,806) 300,043 SUPPLEMENTAL INFORMATION Cash Paid During the Year for Interest 2,990,458 2,252,931 Cash Paid During the Year for Income Taxes 964,000 438,000 NOTE: The Notes to Financial Statements are an integral part of these statements. 8 FREEDOM BANK OF VIRGINIA2015 ANNUAL REPORT Notes to Financial Statements DECEMBER 31, 2015 AND 2014 1. Nature of Operations and Summary of Significant Accounting Policies The accounting and reporting policies of The Freedom Bank of Virginia (the Bank) conform to generally accepted accounting principles (GAAP) and reflect practices of the banking industry. The policies are summarized below. NATURE OF OPERATIONS The Freedom Bank of Virginia 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 (FDIC). The Bank provides banking services at its branch offices in Vienna, Fairfax and Reston, 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. INTEREST BEARING DEPOSIT WITH BANK The Bank maintains an interest bearing deposit with another institution in Virginia. Interest bearing deposits are valued at cost. Interest income is recorded as interest income on investment securities. 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 (loss) 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 (loss) 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, Federal Home Loan Bank (FHLB) stock, and Community Bankers Bank stock are considered restricted investment securities, are carried at cost and are evaluated annually for impairment. The stock is required in order to be a member or for borrowings. 9 FINANCIAL STATEMENTSFREEDOM BANK OF VIRGINIALOANS AND LOAN FEES 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 sells its mortgage loans forward to investors and the estimated fair value is largely dependent upon the terms of these outstanding loan purchase commitments, as well as movement in market interest rates. 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 ongoing 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. The allowance consists of two basic components: the specific allowance and the pooled allowance. The specific allowance component is used to individually establish an allowance for loans considered impaired. 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. The pooled component is used to estimate the losses inherent in the pools of non-impaired loans. These loans are then also segregated by loan type and allowance factors are assigned by management based on delinquencies, loss history, trends in volume and terms of loans, effects of changes in lending policy, the experience and depth of management, national and local economic trends, concentrations of credit, results of the loan review system and the effect of external factors (i.e., competition and regulatory requirements). Current economic conditions take into account the average unemployment rate for the Northern Virginia area and for the nation, with the most significance given to the local data. The allowance factors assigned differ by loan type. BANK PREMISES AND EQUIPMENT 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. 10 FREEDOM BANK OF VIRGINIA2015 ANNUAL REPORT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 are 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. The Bank owned no other real estate at December 31, 2015 and 2014. BANK-OWNED LIFE INSURANCE The Bank entered into bank-owned single premium life insurance policies during 2012 that are maintained by two counterparties. Under the bank-owned life insurance policies, executives or other key individuals are the insured and the Bank is the owner and beneficiary of each policy. As such, the insured has no claim to either the insurance policy, cash value, or a portion of the policy’s death proceeds. The increase in the cash surrender value over time is recorded as other income. The Bank monitors the financial strength and condition of both counterparties. STOCKHOLDERS’ EQUITY At December 31, 2014, warrants were outstanding and exercisable to purchase 367,553 shares of common stock at $8.36 per share if exercised by January 15, 2015, and 71,121 shares of common stock at $8.36 per share if exercised by February 16, 2015. The amounts and number of warrants have been adjusted for the six-for-five stock split that was effective on February 16, 2012 and August 13, 2013 and the eleven-for-ten stock split that was effective on April 1, 2014. On February 20, 2014, the Bank declared an eleven-for-ten stock split, effective for stockholders of record on April 1, 2014. All references to share and per share amounts in the financial statements have been restated to reflect the stock splits. On October 31, 2014, the Bank released an Offering Memorandum for up to $4,000,000 of common stock, par value $3.16 per share, at an offering price of $9.00 per share (“capital offering”). The offering was for a maximum of 444,445 shares of common stock. The offering closed December 12, 2014 and the amount of funds raised from the capital offering, net of related expenses, was $1,600,891. Common stock of 187,060 shares was issued. Capital funds raised were allocated to common stock and additional paid-in capital. On December 22, 2014, the Bank released an Offering Memorandum for subscription rights to holders of common stock (“rights offering”). Pursuant to this rights offering, the Bank offered subscription rights to purchase up to 66,667 units (each a “unit”) at a per unit price of $45.00. Each unit will consist of five shares of common stock and one two- year warrant to purchase one share of common stock at a price of $9.00 per share. Shareholders who own outstanding warrants to purchase common stock may surrender these warrants in exchange for a credit of $.64 per warrant surrendered toward the purchase price of units they purchase in this rights offering. The offering closed January 30, 2015. The amount of funds raised from the rights offering, net of related expenses, was $1,893,657. Common stock of 244,713 shares was issued. Capital funds raised were allocated to common stock and additional paid-in capital. During December 2015, the Bank entered into purchase agreements for the private placement of an aggregate of $16 million of its common stock to institutional investors. The purchase agreements encompass two closings; the first closing on December 29, 2015, and the second closing upon satisfaction of certain conditions as set forth in the agreements. The first closing raised capital of $9,336,432, net of related expenses of $663,572, encompassing 1,176,471 shares. Offering expenses include $250,000 for the lead investor as reimbursement of expenses and related matters in connection with the consummation of the equity investment. The purchase agreements require an amendment to the Bank’s articles of incorporation whereby the amount of authorized capital will consist of 25,000,000 shares of common stock at $0.01 par 11 FINANCIAL STATEMENTSFREEDOM BANK OF VIRGINIAvalue per share, of which 23,000,000 will consist of shares of voting common stock and 2,000,000 will consist of non-voting common stock, and 5,000,000 shares of preferred stock at $0.01 par value per share. In addition, the purchase agreement requires upon request of the lead investor to cause an increase in the number of directors on the Board by one director and to appoint a person nominated by such lead investor. The Articles of Incorporation Amendment and the change to the Board of Directors must occur before the second closing. The second closing is estimated to raise funds of $5,999,997 with 78,445 shares of voting common stock and 627,437 shares of non-voting common stock. In addition, the institutional investors hold a registration rights agreement that permits them to request the Bank register a form S-1 (Registration Statement under the Securities Act of 1933), as outlined in the agreement, if the Bank has formed a holding company. The proceeds of the capital and rights offerings and the private placement are for general corporate purposes which may include improving the Bank’s regulatory capital position and supporting future growth. Comprehensive income represents all changes in equity that result from recognized transactions and other economic events of the period. Other comprehensive income 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. INCOME TAXES 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 the difference between the basis of the 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. Management determined that recent profitability and projections of future taxable income will be adequate to absorb the Bank’s allowance for loan loss included in the deferred tax asset. 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. The Bank is not currently under audit by any income tax jurisdiction. The Bank has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements, and no interest and penalties have been recorded in the accompanying financial statements related to uncertain tax positions. 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. 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 August 2010, the Bank entered into an employment agreement with the Bank’s current 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 17 months and will 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. 12 FREEDOM BANK OF VIRGINIA2015 ANNUAL REPORTSTATEMENTS OF CASH FLOWS The Bank considers all cash and amounts due from banks, 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, 2015, the date of the most recent balance sheet, have been evaluated for possible adjustment to the financial statements or disclosure is February 2, 2016, which is the date on which the financial statements were available to be 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. The required reserve at December 31, 2015 and 2014 was $1,012,000 and $759,000, respectively. 3. Securities Available-for-Sale and Held-to-Maturity The amortized cost and fair values of securities as shown in the balance sheets of the Bank are as follows: DEC. 31, 2015 Available-for-Sale AMORTIZED COSTS ($) GROSS UNREALIZED GAINS ($) GROSS UNREALIZED LOSSES ($) FAIR VALUE ($) U.S. Government and Agency Securities Corporate Securities 5,638,861 2,053,310 — 50 (35,276) (17,217) 5,603,585 2,036,143 Mortgage Backed Securities 26,682,815 12,390 (412,482) 26,283,263 Municipal Securities SBA Loan Pools TOTAL INVESTMENT SECURITIES 2,254,006 10,258,426 46,887,418 — (12,511) 2,241,495 10,374 23,357 (117,705) 10,151,095 (595,191) 46,315,581 DEC. 31, 2014 Available-for-Sale U.S. Government and Agency Securities Corporate Securities Mortgage Backed Securities SBA Loan Pools Total Available-for-Sale Held-to-Maturity AMORTIZED COSTS ($) GROSS UNREALIZED GAINS ($) GROSS UNREALIZED LOSSES ($) FAIR VALUE ($) 3,999,064 1,061,234 16,635,961 5,781,598 27,477,857 — — 56,926 15,530 72,456 (59,877) (8,697) (87,564) (99,222) 3,939,187 1,052,537 16,605,323 5,697,906 (255,360) 27,294,953 Mortgage Backed Securities 5,610 36 — 5,646 TOTAL INVESTMENT SECURITIES 27,483,467 72,492 (255,360) 27,300,599 13 FINANCIAL STATEMENTSFREEDOM BANK OF VIRGINIAThe amortized cost and estimated fair value of available-for-sale debt securities at December 31, 2015, by contractual maturity, are as follows: Amounts Maturing in: 1 Year or Less After 1 Year - 5 Years After 5 Years - 10 Years After 10 Years Mortgage Backed Securities AMORTIZED COST ($) FAIR VALUE ($) — — 7,018,724 6,974,308 1,005,279 992,393 12,180,600 12,065,617 20,204,603 20,032,318 26,682,815 26,283,263 46,887,418 46,315,581 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, 2015 and 2014, U.S. Government and agency securities and mortgage backed securities with carrying values of $10,950,446 and $14,653,130, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. Information pertaining to available-for-sale securities with gross unrealized losses at December 31, 2015, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is as follows: LESS THAN 12 MONTHS OVER 12 MONTHS GROSS UNREALIZED LOSSES ($) FAIR VALUE ($) GROSS UNREALIZED LOSSES ($) FAIR VALUE ($) Corporate Securities 12,886 492,393 4,331 538,250 Mortgage Backed Securities 376,187 19,978,212 36,295 1,821,413 Municipal Securities 12,511 926,973 U.S. Government Securities 35,276 5,603,585 — — — — SBA Loan Pools 74,080 4,094,793 43,625 2,295,534 14 FREEDOM BANK OF VIRGINIA2015 ANNUAL REPORT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. At December 31, 2015, 38 debt securities with an unrealized loss for less than one year and 7 debt securities with an unrealized loss for greater than one year depreciated less than four percent from the Bank amortized cost basis. Forty- three of the securities are secured by Federal agency mortgage backed securities or U.S. Treasury obligations and direct obligations of U.S. Government agencies. Two of the securities are corporate bonds. 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 securities are not deemed to be other-than-temporary. 4. Loans Receivable Loans receivable include the following: Commercial Consumer and Other Real Estate Subtotal Deferred Loan Fees TOTALS 2015 ($) 2014 ($) 44,054,331 49,266,330 13,769,129 8,159,864 262,012,630 222,251,579 319,836,090 279,677,773 (766,480) (688,187) 319,069,610 278,989,586 Commercial and industrial loans: The commercial lending portfolio consists primarily of commercial and industrial loans for the financing of accounts receivable, property, plant and equipment. Commercial loans typically are made on the basis of the borrower’s ability to repay the loan from the cash flow from its business and are secured by business assets, such as commercial real estate, accounts receivable, equipment and inventory, the values of which may fluctuate over time and generally cannot be appraised with as much precision as residential real estate. To manage these risks, the Bank’s policy is to secure commercial loans originated with both the assets of the business, which are subject to the risks described above, and other additional collateral and guarantees that may be available. Real estate - commercial loans: Commercial real estate loans are primarily secured by various types of commercial real estate, including office, retail, warehouse, industrial and other non-residential types of properties and are made to the owners and/or occupiers of such property. The repayment of loans secured by income-producing properties is typically dependent upon the successful operation of a business or real estate project, and thus may be subject to adverse conditions in the commercial real estate market or in the general economy. The Bank generally requires personal guarantees or endorsements with respect to these loans and loan-to-value ratios for commercial real estate loans, which generally do not exceed 80 percent. Real estate - residential and home equity loans: This portfolio consists of residential first and second mortgage loans, residential construction loans and home equity lines of credit and term loans secured primarily by the residences of borrowers. Residential mortgage loans and home equity lines of credit secured by owner-occupied property generally are made with a loan-to-value ratio of up to 80 percent. 15 FINANCIAL STATEMENTSFREEDOM BANK OF VIRGINIAAn analysis of the allowance for possible loan losses based on type or loan segment, which identifies certain loans that are evaluated for individual or collective impairment, as of December 31 is as follows: YEAR 2015 COMMERCIAL AND INDUSTRIAL ($) REAL ESTATE COMMERCIAL ($) REAL ESTATE CONSTRUCTION ($) REAL ESTATE RESIDENTIAL ($) CONSUMER ($) TOTAL ($) Allowance for Possible Loan Losses Beginning Balance 331,078 1,326,949 711,857 215,896 100,027 2,685,807 Charge-offs Recoveries Provision Ending Balance (224,887) — — — — — — — — — (224,887) — 264,903 270,458 65,167 78,696 (6,724) 672,500 371,094 1,597,407 777,024 294,592 93,303 3,133,420 Individually Evaluated for Impairment — — — — — — Collectively Evaluated for Impairment 371,094 1,597,407 777,024 294,592 93,303 3,133,420 Loans Receivable Ending Balance 44,054,331 146,496,390 41,034,055 74,482,185 13,769,129 319,836,090 Individually Evaluated for Impairment 106,052 950,823 93,529 892,265 — 2,042,669 Collectively Evaluated for Impairment 43,948,279 145,545,567 40,490,526 73,589,920 13,769,129 317,793,421 YEAR 2014 Allowance for Possible Loan Losses COMMERCIAL AND INDUSTRIAL ($) REAL ESTATE COMMERCIAL ($) REAL ESTATE CONSTRUCTION ($) REAL ESTATE RESIDENTIAL ($) CONSUMER ($) TOTAL ($) Beginning Balance 449,602 1,282,986 480,842 275,925 98,008 2,587,363 Charge-offs Recoveries Provision Ending Balance (336,027) (97,248) 75,000 142,503 — 141,211 331,078 1,326,949 — — 231,015 711,857 — — (29,758) (463,033) 477 75,477 (60,029) 31,300 486,000 215,896 100,027 2,685,807 Individually Evaluated for Impairment — — — — — — Collectively Evaluated for Impairment 331,078 1,326,949 711,857 215,896 100,027 2,685,807 Loans Receivable Ending Balance 49,266,330 124,993,736 36,247,806 61,010,037 8,159,864 279,677,773 Individually Evaluated for Impairment — 566,562 393,529 264,640 — 1,224,731 Collectively Evaluated for Impairment 49,266,330 124,427,174 35,854,277 60,745,397 8,159,864 278,453,042 16 FREEDOM BANK OF VIRGINIA2015 ANNUAL REPORTAn analysis of non-accrual and past due loans is as follows at December 31: YEAR 2015 Commercial Non-Real Estate Commercial and Industrial Commercial Real Estate Owner Occupied Non-Owner Occupied Construction Residential Commercial Consumer Non-Real Estate Automobile Other Residential First Trusts Equity Lines TOTAL YEAR 2014 Commercial Non-Real Estate Commercial and Industrial Commercial Real Estate Owner Occupied Non-Owner Occupied Construction Residential Commercial Consumer Non-Real Estate Automobile Other Residential First Trusts Equity Lines TOTAL 30-59 DAYS PAST DUE ($) 60-89 DAYS PAST DUE ($) 90 DAYS OR MORE PAST DUE ($) TOTAL PAST DUE ($) CURRENT ($) TOTAL FINANCING RECEIVABLES ($) NONACCRUAL LOANS ($) 10,403 — 10,403 44,043,928 44,054,331 106,052 48,806 48,806 64,675,090 64,723,896 — 81,772,494 81,772,494 — — — — — — — — — — 849,714 — — — — — — — — — — — — — — — — 22,957,943 22,957,943 93,529 — 18,076,112 18,076,112 — 334,092 334,092 — 13,435,037 13,435,037 — 63,758,297 63,758,297 849,714 9,874,174 10,723,888 — — — — — 849,714 10,403 48,806 908,923 318,927,167 319,836,090 199,581 30-59 DAYS PAST DUE ($) 60-89 DAYS PAST DUE ($) 90 DAYS OR MORE PAST DUE ($) TOTAL PAST DUE ($) CURRENT ($) TOTAL FINANCING RECEIVABLES ($) NONACCRUAL LOANS ($) — — — — — — — — — — — — — — — — — — 60,000 60,000 — — — — — — — — — — — 49,266,330 49,266,330 — 54,173,344 54,173,344 — 70,820,392 70,820,392 — — — — 15,989,057 15,989,057 393,529 — 20,258,749 20,258,749 — 233,693 233,693 — 7,926,171 7,926,171 — 49,950,577 49,950,577 60,000 10,999,460 11,059,460 — — — — — 60,000 279,617,773 279,677,773 393,529 17 FINANCIAL STATEMENTSFREEDOM BANK OF VIRGINIAAn analysis of impaired loans based on loan segment is as follows at December 31: RECORDED INVESTMENT ($) UNPAID PRINCIPAL BALANCE ($) RELATED ALLOWANCE FOR LOAN LOSSES ($) AVERAGE RECORDED INVESTMENT ($) INTEREST INCOME RECOGNIZED ($) YEAR 2015 With No Related Allowance Recorded: Real Estate Construction Residential Commercial Commercial and Industrial TOTAL Real Estate 93,529 892,265 950,823 106,052 93,529 892,265 950,823 106,052 1,936,617 1,936,617 Commercial and Industrial 106,052 103,052 — — — — — — 326,433 907,843 964,813 219,803 2,199,089 219,803 — 32,039 51,775 4,454 83,814 4,454 YEAR 2014 With No Related Allowance Recorded: Real Estate Construction Residential Commercial Commercial and Industrial TOTAL Real Estate RECORDED INVESTMENT ($) UNPAID PRINCIPAL BALANCE ($) RELATED ALLOWANCE FOR LOAN LOSSES ($) AVERAGE RECORDED INVESTMENT ($) INTEREST INCOME RECOGNIZED ($) 393,529 566,562 264,640 393,529 566,562 264,640 — — — 560,132 1,827,791 271,251 — 101,703 15,295 1,224,731 1,224,731 — 2,659,174 116,998 No additional funds are committed to be advanced in connection with the impaired loans. One of the most significant factors in assessing the Bank’s loan portfolio is the risk rating. The Bank uses the following risk ratings to manage the credit quality of its loan portfolio: pass, special mention, substandard, doubtful and loss. Special mention loans are those loans that have potential weakness that deserves management’s close attention. These loans have potential weaknesses that may result in deterioration of the repayment prospects for the loan or the Bank’s credit position at some future date. Substandard loans are inadequately protected by current sound worth, paying capacity of the borrower, or pledged collateral. Doubtful loans have all the inherent weaknesses in the substandard classification and collection or liquidation in full is highly questionable. Loss loans are considered uncollectible and of such little value that continuance as an active asset is not warranted. All other loans not rated are considered to have a pass rating. 18 FREEDOM BANK OF VIRGINIA2015 ANNUAL REPORTAn analysis of the credit quality indicators is as follows at December 31: YEAR 2015 Commercial — Non-Real Estate PASS ($) SPECIAL MENTION ($) SUBSTANDARD ($) DOUBTFUL ($) LOSS ($) Commercial and Industrial 43,784,412 163,867 106,052 Commercial — Real Estate Owner Occupied Non-Owner Occupied Construction Residential Commercial Consumer-Non-Real Estate Automobile Other Residential First Trusts Equity Lines TOTAL 60,477,475 81,772,494 22,864,415 18,076,112 334,092 13,435,037 63,523,134 9,151,155 3,676,619 569,802 — — — — — 235,164 844,853 — 93,528 — — — — 727,879 313,418,326 4,920,503 1,497,261 — — — — — — — — — — — — — — — — — — — — YEAR 2014 Commercial — Non-Real Estate PASS ($) SPECIAL MENTION ($) SUBSTANDARD ($) DOUBTFUL ($) LOSS ($) Commercial and Industrial 48,943,957 157,486 164,887 Commercial — Real Estate Owner Occupied Non-Owner Occupied Construction Residential Commercial Consumer-Non-Real Estate Automobile Other Residential First Trusts Equity Lines TOTAL 52,926,770 70,648,324 15,595,529 20,258,748 233,693 7,926,171 49,651,751 9,018,520 275,203,463 1,246,574 — — — — — 238,828 1,770,886 3,413,774 — 172,068 393,529 — — — — 330,052 1,060,536 — — — — — — — — — — — — — — — — — — 19 FINANCIAL STATEMENTSFREEDOM BANK OF VIRGINIAA loan modification is classified as a troubled debt restructuring (TDR) if both of the following exist: 1) the borrower is experiencing financial difficulty, and 2) the Bank has granted a concession to the borrower. The assessment of whether the above conditions exist is subjective and requires management’s judgment. TDRs are typically modified through reductions in interest rates, reduction in payments, changing the payment terms or through extensions in term maturity. There were no loans modified as TDRs for the years ended December 31, 2015 and 2014. 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 $2,431,316 and $2,665,314 at December 31, 2015 and 2014, respectively. New loans made to such related parties, including loans held by new directors, amounted to $2,484,992 and $313,463, and payments amounted to $2,718,990 and $793,362 at December 31, 2015 and 2014, respectively. 5. BANK PREMISES AND EQUIPMENT Bank premises and equipment include the following: Furniture and Equipment Leasehold Improvements Software Total cost Less Accumulated Depreciation NET BANK PREMISES AND EQUIPMENT 2015 ($) 2014 ($) 1,299,877 1,379,335 485,762 58,340 485,762 238,382 1,843,979 2,103,479 (1,123,779) (1,272,709) 720,200 830,770 Depreciation and amortization of bank premises and equipment charged to expense amounted to $233,790 and $167,795 in 2015 and 2014, respectively. 6. DEPOSITS Time deposits in denominations that meet or exceed the FDIC minimum limit of $250,000 or more totaled $46,086,607 and $47,860,702 at December 31, 2015 and 2014, respectively. The following are time deposits maturing in years ending December 31: 2016 2017 2018 2019 2020 TOTAL 20 $135,431,724 44,935,387 18,908,020 5,855,002 1,829,518 $206,959,651 FREEDOM BANK OF VIRGINIA2015 ANNUAL REPORTThe Bank held related party deposits of approximately $11,577,000 and $10,943,000 at December 31, 2015 and 2014, respectively. 7. BORROWINGS At December 31, 2015 and 2014, the Bank had $2,100,000 available under a line of credit Fed Funds facility to be used for temporary, short-term needs with borrowings not to exceed seven consecutive business days. There were no borrowings on this line at December 31, 2015 and 2014. At December 31, 2015 and 2014, the Bank had an additional $6,000,000 and $2,000,000, respectively, 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. The borrowings are secured by $200,000, plus any earnings credited, held in a cash and correspondent account that is recorded as cash and due from banks on the balance sheets. There were no borrowings on this line at December 31, 2015 and 2014. At December 31, 2015 and 2014, the Bank also had $6,000,000 available under a line of credit Fed Funds facility to be used for overnight cash settlements. The borrowings are secured by $500,000 and $300,000 held in a cash and correspondent account that is recorded as cash and due from banks on the balance sheets at December 31, 2015 and 2014, respectively. There were no borrowings on this line at December 31, 2015 and 2014. On September 23, 2015, the Bank entered into an agreement with the FHLB for $2,000,000 advanced under a principal reducing credit facility. The agreement calls for semi-annual principal payments of $142,857 beginning March 23, 2016, interest payments at 1.72 percent and matures on September 23, 2022. On November 16, 2015, the Bank entered into an additional agreement with the FHLB for $4,200,000 advanced under a fixed rate credit facility to be used for temporary, short-term needs. The agreement calls for monthly interest payments at 0.28 percent and matures on February 18, 2016. The principal reducing credit facility and the fixed rate credit facility with the FHLB are secured by certain residential and commercial mortgages. The Bank has an additional daily rate credit advance facility available with the FHLB. No amount was outstanding at December 31, 2015. For the years ended December 31, 2015 and 2014, interest expense on the borrowings was $10,930 and $-0-, respectively. Principal maturities by year are as follows: 2016 2017 2018 2019 2020 Thereafter TOTAL $4,485,716 285,714 285,714 285,714 285,714 571,428 $6,200,000 21 FINANCIAL STATEMENTSFREEDOM BANK OF VIRGINIA8. INCOME TAXES Significant components of deferred income tax assets and liabilities are as follows at December 31: DEFERRED SOURCE Loans and Loan Loss Reserve Unearned Loan Fees and Costs, Net Depreciation Gross Deferred Tax Assets Valuation Allowance Net Deferred Tax Assets The provision for income taxes consists of the following at December 31: Current Tax Expense Deferred (Benefit) Tax Expense Change in Valuation Allowance 2015 ($) 2014 ($) 1,534,000 1,305,000 261,000 234,000 (191,000) (219,000) 1,604,000 1,320,000 — — 1,604,000 1,320,000 2015 ($) 1,169,000 (543,000) — 885,000 2014 ($) 461,000 82,000 (543,000) — The following is a reconciliation of the Federal statutory income tax rate to the effective tax rate as a percent of pre-tax income for the years ended December 31: Federal Statutory Rate Permanent Differences Change in Valuation Allowance Effective Tax Rate 2015 (%) 2014 (%) 34% — — 34% 34% — (34) 0% 9. CAPITAL REQUIREMENTS The Bank is subject to various regulatory capital requirements administered by 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 as of January 1, 2015, of total capital, Tier 1 capital and common equity Tier 1 capital to risk-weighted assets (as defined in the regulations), and Tier 1 capital to adjusted average total assets (as defined). Prior to January 1, 2015, minimum amounts and ratios of total capital, Tier 1 capital and Tier 1 capital to adjusted average total assets (as defined), were required. Management believes, as of December 31, 2015 and 2014, that the Bank meets all the capital adequacy requirements to which it is subject. 22 FREEDOM BANK OF VIRGINIA2015 ANNUAL REPORTAs of December 31, 2015, 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 following table. There are no conditions or events since the most recent notification that management believes have changed the Bank’s prompt corrective action category. The Bank’s actual capital amounts and ratios as of December 31, 2015 and 2014 are as follows: DEC. 31, 2015 Total Capital (to Risk Weighted Assets) Tier 1 Capital (to Risk Weighted Assets) Common Equity Tier 1 (to Risk Weighted Assets) Tier 1 Capital (to Adjusted Average Assets) DEC. 31, 2014 Total Capital (to Risk Weighted Assets) Tier 1 Capital (to Risk Weighted Assets) Tier 1 Capital (to Average Assets) ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS AMOUNT ($) RATIO (%) AMOUNT ($) RATIO (%) AMOUNT ($) RATIO (%) 42,580,925 13.03 26,138,400 8.00 32,673,000 10.00 42,892,618 13.13 19,603,800 6.00 26,138,400 8.00 42,892,618 13.13 14,702,850 4.50 21,237,450 6.50 42,892,618 11.60 14,791,180 4.00 18,488,975 5.00 29,769,220 10.95 21,749,040 8.00 27,186,300 10.00 29,828,107 10.97 10,874,520 4.00 16,311,780 6.00 29,828,107 10.02 11,911,117 4.00 14,888,897 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 are as follows at December 31, 2015: 2007 Plan 633,600 552,771 426,185 AUTHORIZED GRANTED VESTED The stock options shall not be exercisable more than ten years after the date such option is granted. Shares typically vest over periods ranging from one to four years. At December 31, 2015, there was approximately $24,000 in unrecognized compensation expense related to non-vested share-based compensation. At December 31, 2014, there was approximately $58,000 in unrecognized compensation expense related to non-vested share-based compensation. 23 FINANCIAL STATEMENTSFREEDOM BANK OF VIRGINIAAmounts and the number of options have been retrospectively adjusted for the six-for-five stock splits that were effective on February 16, 2012 and August 13, 2013, and the eleven-for-ten stock split that was effective on April 1, 2014. The Bank canceled and reissued stock options granted in 2007. The following summarizes the option activity under the Plan: NUMBER OF SHARES OPTION PRICE PER SHARE ($) WEIGHTED AVERAGE EXERCISE PRICE ($) OUTSTANDING (DEC. 31, 2013) Grants Exercised Canceled or Expired OUTSTANDING (DEC. 31, 2014) Grants Exercised Canceled or Expired OUTSTANDING (DEC. 31, 2015) 458,602 96,275 (23,260) (1,584) 530,033 32,500 (9,212) (550) 552,771 6.50 8.99 6.03 6.27 6.97 8.14 6.50 9.09 7.04 6.50 8.99 6.03 6.27 6.97 8.14 6.50 9.09 7.04 The weighted average fair value of options granted during the year ended December 31, 2015 was $8.14. The weighted average remaining contractual life of options outstanding as of December 31, 2015 is 6.34 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 the 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 3.25 percent, an estimated dividend yield of zero percent, an expected holding period of 10 years and volatility of 5.00 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 bonds 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. For the years ended December 31, 2015 and 2014, the Bank recognized approximately $55,000 and $8,000 in stock-based compensation expense, respectively. 11. OPERATING LEASES In December 2015, the Bank exercised its third 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 2020. The total base annual lease payments for the base year of the third extension are $85,223, increasing a maximum of five 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. In December 2014, the Bank entered into an updated agreement that separated the headquarters and branch space. The headquarters space lease for 6,002 square feet was extended for an additional year 24 FREEDOM BANK OF VIRGINIA2015 ANNUAL REPORTending December 31, 2015. Total base annual lease payments under the one-year extension are $225,855 for both the headquarters and branch space. The agreement includes additional rent payments based on a pro rata portion of annual taxes, common area maintenance charges, and utilities. The lease for the headquarters space was extended through March 31, 2016. The updated lease agreement for the branch is for an initial lease term of ten years commencing January 1, 2016 and ending December 31, 2025. Total base annual lease payments are $125,895 for the first year, increasing 3 percent per annum thereafter. The agreement includes additional rent payments based on a pro rata portion of annual taxes, common area maintenance charges, and utilities. The Bank has the right to renew the branch lease for two periods of five additional years as provided for in the lease. In July 2011, the Bank renewed its lease for its loan operations on the second floor at 10555 Main Street in Fairfax, Virginia. The agreement provided for an initial lease term of five years commencing August 1, 2011 and ending July 31, 2016. Total base annual lease payments are $148,764 for the first year, increasing three percent per annum thereafter. In December 2014, the Bank entered into an updated agreement amending the lease to end on December 31, 2015. The lease agreement was for 6,072 square feet. The agreement included additional rent payments based on a pro rata portion of annual taxes, common area maintenance charges, and utilities. In September 2015, the Bank entered into a lease agreement for suites on the second and sixth floors at 10555 Main Street in Fairfax, Virginia. The agreement provides for an initial lease term of eight years commencing January 1, 2016 and ending December 31, 2023. Total base annual lease payments are $349,509 for the first year, increasing three percent per annum thereafter. The lease agreement is for 13,189 square feet. The agreement includes the option to renew the lease for two periods of five additional years at the then current market rate. The agreement includes additional rent payments based on a pro rata portion of annual taxes, common area maintenance charges, and utilities. In November 2013, the Bank entered into a lease for an additional branch facility at 11700 Plaza America Drive in Reston, Virginia. The agreement provides for an initial lease term of 10 years commencing May 1, 2014 and ending April 30, 2024 with the option to extend the term for two additional periods of five years each. Total base annual lease payments are $80,576 for the first year, increasing 1.0275 percent per annum thereafter. The lease agreement is for 2,518 square feet. The agreement includes additional rent payments based on a pro rata portion of annual taxes, common area maintenance charges, and utilities. In February 2015, the Bank entered into a sub-lease agreement for office space in Chantilly, Virginia. The agreement provides for an initial lease term of two years commencing March 1, 2015 through February 28, 2017. Total base annual payments are $64,875 for 4,055 square feet. The following are the future minimum lease payments at December 31, 2015: YEARS ENDING DECEMBER 31 2016 2017 2018 2019 2020 Thereafter $731,804 676,163 685,467 706,260 727,754 2,329,920 5,857,368 Rent expense amounted to $712,063 and $530,626 for the years ended December 31, 2015 and 2014, respectively. 25 FINANCIAL STATEMENTSFREEDOM BANK OF VIRGINIA12. FAIR VALUE MEASUREMENTS Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, provides a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value focuses on the price that would be received to sell the asset or paid to transfer the liability regardless of whether an observable liquid market price existed (an exit price). The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described below: Level 1 – inputs to the valuation methodology are based upon unadjusted quoted prices for identical assets or liabilities in active markets that the Bank has the ability to access. Level 2 – inputs to the valuation methodology include: quotes prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and market-corroborated inputs. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities measured at fair value are based on one or more of three valuation techniques (market, cost, or income approach). The market approach evaluates prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The cost approach evaluates the amount that would be required to replace the service capacity of an asset (i.e., replacement cost). The income approach uses techniques that convert future amounts to a single present amount based on market expectations (including present value techniques, option-pricing models, and lattice models). The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. 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: QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1) ($) SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2) ($) SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) ($) FAIR VALUE ($) DEC. 31, 2015 Available-for-Sale Securities 46,315,581 DEC. 31, 2014 Available-for-Sale Securities 27,294,953 — — 46,315,581 27,294,953 — — 26 FREEDOM BANK OF VIRGINIA2015 ANNUAL REPORT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. 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 receivable 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 possible 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 ($) DEC. 31, 2015 Impaired Loans DEC. 31, 2014 Impaired Loans 2,042,669 1,224,731 — — 2,042,669 1,224,731 — — The following methods and assumptions were used by the Bank in estimating fair values of financial instruments as disclosed herein: Cash and due from banks: The carrying amounts of cash and due from banks approximate their fair value. Interest bearing deposits with banks: The carrying amounts of interest bearing deposits with banks 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. Securities available-for-sale and held-to-maturity: 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. Loans held for sale: The carrying amount is the lower of aggregate cost or fair value. The estimated fair value is dependent upon the terms of the outstanding loan purchase commitments as well as movement in market interest rates. 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 27 FINANCIAL STATEMENTSFREEDOM BANK OF VIRGINIAwith securitization transactions, adjusted for differences in loan characteristics. Fair values for business real estate and business loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms 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 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. FHLB advances: The fair value of the FHLB advances is determined using rates currently available to the Bank for debt with similar terms and remaining maturities. Off-balance sheet financial instruments: At December 31, 2015 and 2014, 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: 2015 2014 CARRYING AMOUNT ($) FAIR VALUE ($) CARRYING AMOUNT ($) FAIR VALUE ($) Financial Assets Cash and Due from Banks 5,856,391 5,856,391 4,917,099 4,917,099 Interest Bearing Deposits with Banks 1,028,248 1,028,248 1,024,155 1,024,155 Federal Funds Sold 15,000,000 15,000,000 24,837,000 24,837,000 Securities Available-for-Sale 46,315,581 46,315,581 27,294,953 27,294,953 Loans Held for Sale — — Securities Held-to-Maturity 7,634,844 7,634,844 5,610 649,975 5,646 649,975 Loans Receivable, net 315,936,190 314,624,624 276,303,779 275,320,723 Accrued Interest Receivable Bank-owned Life Insurance 963,995 963,995 864,224 864,224 2,221,695 2,221,695 2,160,567 2,160,567 TOTAL FINANCIAL ASSETS 394,956,944 393,645,378 338,057,362 337,074,342 Financial Liabilities Non-interest Bearing Deposits 51,849,383 51,849,383 51,431,344 51,431,344 Interest Bearing Deposits 88,182,669 88,182,669 65,959,271 65,959,271 Saving Deposits FHLB Advances Time Deposits 2,573,038 2,573,038 2,637,231 2,637,231 6,200,000 6,200,000 — — 206,959,651 207,858,044 191,660,138 191,945,611 Accrued Interest Payable 97,216 97,216 92,304 92,304 TOTAL FINANCIAL LIABILITIES 355,861,957 356,760,350 311,780,288 312,065,761 28 FREEDOM BANK OF VIRGINIA2015 ANNUAL REPORT13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK In the normal course of business, the Bank has outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying financial statements. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Bank uses the same credit policies in making such commitments as it does for instruments that are included in the balance sheets. Financial instruments whose contract amount represents credit risk were approximately as follows: Commitments to Extend Credit Standby Letters of Credit 2015 ($) 2014 ($) 83,372,000 107,464,000 1,709,000 1,001,000 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 2015 or 2014. 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, 2014, capital was not available for payment of dividends. 15. DEFERRED BENEFITS Effective July 1, 2002, the Bank adopted a contributory 401(k) savings plan covering substantially all employees, which allows eligible employees to contribute up to 25 percent of their compensation. The Board of Directors may elect to approve to match a portion of each employee’s contribution. The Bank elected to make a discretionary contribution of approximately $193,000 and $140,700 for the years ended December 31, 2015 and 2014, respectively. The Bank adopted deferred compensation plans for its directors, effective December 31, 2012, and its executives, effective February 1, 2013. Under the directors’ plan, a director may elect to defer all or a portion of any director-related fees, including fees for serving on board committees. Under the executives’ plan, certain employees may defer all or a portion of their compensation, including any bonus compensation. 16. LEGAL CONTINGENCIES 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. 29 FINANCIAL STATEMENTSFREEDOM BANK OF VIRGINIASHAREHOLDER & COMPANY INFORMATION BOARD OF DIRECTORS RICHARD C. LITMAN Chairman CYNTHIA CARTER ATWATER Corporate Secretary DAVID C. KARLGAARD, Ph.D. G. THOMAS COLLINS, JR. ALVIN E. NASHMAN, Ph.D. JOHN T. ROHRBACK Vice Chairman CRAIG S. UNDERHILL President and Chief Executive Officer TERRY L. COLLINS, Ph.D. H. JASON GOLD NORMAN P. HORN 30 FREEDOM BANK OF VIRGINIADIRECTORS EMERITUS With Deepest Appreciation for the Directors Who Previously Served IRVING BERNSTEIN RICHARD L. HALL RUSSEL E. SHERMAN Founding Director 2000-2007 In Memoriam Founding Director, President, & COO 2000-2003 In Memoriam Founding Director 2000-2007 In Memoriam JOHN F. CARMAN TIMOTHY P. HECHT HARRY N. SNYDER, O.D. Founding Director & Vice Chairman 2000-2006 In Memoriam Director 2005-2007 Director Emeritus Founding Director 2000-2007 GEORGE C. DUKAS GEORGE Z. KONTZIAS JAMES F. STEFFEY Director 2002-2005 Director Emeritus Director 2002-2006 Director Emeritus Founding Director 2000-2007 Director Emeritus WILLIAM G. DUKAS MICHAEL A. MIRANDA C. STEPHEN TEMPLETON Founding Director 2000-2011 In Memoriam MICHAEL A. FALKE Founding Director 2000-2002 Co-Founder & Organizing Director 2000-2013 In Memoriam Founding Director 2000-2002 JAMES N. NEWSOME CHARLES M. WRIGHT Founding Chairman & CEO 2000-2003 Director Emeritus Founding Director 2000-2002 Director Emeritus ADVISORY BOARD AZMAT ALI OWEN MICHAEL MCCALL JAMES F. STEFFEY DARREN BERNSTEIN USAMA H. MISLEH FRANK V. STURGEON BRIAN BLOXOM ELIZABETH J. MOFFETT C. STEPHEN TEMPLETON PHILIP DONDES JAMES N. NEWSOME ROBERT G. WILLIAMS BRYAN FELDER ARLENE LYLES PRIPETON CHARLES M. WRIGHT JARED JABLONKA THOMAS J. RILEY 31 SHAREHOLDER & COMPANY INFORMATIONFREEDOM BANK OF VIRGINIAEXECUTIVE OFFICERS & SENIOR LEADERSHIP TEAM CRAIG S. UNDERHILL President & Chief Executive Officer C. KEVIN CURTIS RICHARD A. HUTCHISON DANIEL E. BURNETT, CPA Executive Vice President Chief Lending Officer NMLS# 1040247 Executive Vice President Chief Mortgage Officer NMLS# 179316 Executive Vice President Chief Financial Officer KARIN M. JOHNS SALLY T. SIVERONI ROBERT D. WILLEY, JR. Executive Vice President Chief Accounting Officer Executive Vice President Chief Credit Officer Executive Vice President Commercial Banking DEBORAH A. FREE Senior Vice President Branch Administration JOAN E. LISZKA Senior Vice President Human Resources KIMBERLY J. RYMAN Senior Vice President Compliance COMMERCIAL BANKING VISHAL M. GANDHI E. ROBERT MUSSEMAN, JR. MICHAEL J. UNDERWOOD Vice President Vice President NMLS# 85152 Senior Vice President and Team Leader ANGELA GANSOR Vice President Business Development Officer NMLS # 431133 JAMES T. NELSON, III Senior Vice President EDWARD W. LULL, JR. Senior Vice President LAURA L. POWELL Senior Vice President DANIEL E. MARKS RICHARD M. SOBONYA Vice President NMLS# 618696 Vice President NMLS# 1442500 STEPHEN A. WITT Senior Vice President NMLS# 1442969 DARREN T. TULLY Vice President NMLS# 1066465 MORTGAGE DIVISION RICHARD A. HUTCHISON Executive Vice President Chief Mortgage Officer NMLS# 179316 32 FREEDOM BANK OF VIRGINIA2015 ANNUAL REPORT CHANTILLY LOAN OFFICERS KIM-ANN H. CYBULSKI CHARLES G. HUTCHISON BRENT MURPHY Senior Mortgage Loan Officer NMLS# 188605 Mortgage Loan Officer NMLS# 1019699 Mortgage Loan Officer NMLS# 1443532 KEVIN P. DENNIS CHRISTINE S. KERN CHRISTOPHER PERSIL Senior Mortgage Loan Officer NMLS# 185900 Senior Mortgage Loan Officer NMLS# 970512 Senior Mortgage Loan Officer NMLS# 188099 STEFAN GOLDFADEN PAIGE LUTZ BONNIE L. ZAPF Senior Mortgage Loan Officer NMLS# 886220 Senior Mortgage Loan Officer NMLS# 1052568 Senior Mortgage Loan Officer NMLS# 188572 SCOTT HILL STEVEN L. MITCHELL Senior Mortgage Loan Officer NMLS# 187713 Senior Mortgage Loan Officer NMLS# 888275 FAIRFAX LOAN OFFICERS GEORGE J. DECKER Senior Mortgage Loan Officer NMLS# 525099 WILLIAM T. ROGERS Senior Mortgage Loan Officer NMLS# 141858 BRANCH LOCATIONS FAIRFAX VIENNA RESTON G. VERONIKA CAVERO ALFREDO G. MOLINA PAULA A. NEWSOME Branch Officer/Manager NMLS# 1307431 Branch Officer/Manager NMLS# 1306195 Vice President/Branch Manager NMLS# 993276 FBV CAPITAL ADVISORS, INC. A subsidiary of The Freedom Bank of Virginia ROBERT N. RUBIN President 33 SHAREHOLDER & COMPANY INFORMATIONFREEDOM BANK OF VIRGINIACORPORATE HEADQUARTERS THE FREEDOM BANK OF VIRGINIA 10555 Main Street Fairfax, VA 22030 703-242-5300 TRANSFER AGENT American Stock Transfer & Trust Company Shareholder Services – Admin 2 Team 6201 Fifteenth Avenue Brooklyn, NY 11219 800-937-5449 www. amstock.com INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Thompson Greenspon Fairfax, VA COMMON STOCK THE FREEDOM BANK OF VIRGINIA Common stock is traded on the OTC Markets Group (OTCQX) under the symbol FDVA NOTICE OF ANNUAL MEETING The Annual Meeting of Shareholders will be held on Wednesday March 16, 2016 – 10:00 a.m. at the Westwood Country Club 800 Maple Avenue East Vienna, VA 22180 34 FREEDOM BANK OF VIRGINIA2015 ANNUAL REPORTVIENNA RESTON 502 Maple Avenue W. Vienna, VA 22180 703-667-4170 11700 Plaza America Drive Reston, VA 22190 703-663-2300 FAIRFAX 10555 Main Street Fairfax, VA 22030 703-242-5300 MORTGAGE DIVISION 4211 Pleasant Valley Road Chantilly, VA 20151 703-766-6400 THE FREEDOM BANK OF VIRGINIA freedombankva.com 

Continue reading text version or see original annual report in PDF format above