2019 ANNUAL
REPORT
Business Banking • Personal Banking • Mortgage Banking
freedom.bank
ABOUT THE BANK
Our Vision
• Provide compelling ideas, relevant financial products, and exceptional service to our clients in the way they
wish to be served
• Focus on building lead relationships with businesses, real estate owners, and professionals with sales offices
across Northern Virginia and the DC Metropolitan Service Area
• Concentrate on industry verticals to deliver unique, sector-specific solutions and have market executives to
engage local businesses and communities
• Use innovative technology, a network of sales offices, and a team of experienced bankers to make banking
functional and convenient for businesses and consumers
Our Core Values
• Freedom Bank’s innovative approach to banking starts with IDEAS based upon a keen understanding of
client needs and market opportunities.
> INNOVATION - Exhaust all options and take smart risks
> DISCIPLINE - Act with unwavering integrity
> EXPERIENCE - Deliver exceptional outcomes
> ATTITUDE - Build relationships through teamwork and respect
> SERVICE - Participate in our communities and industries
• Our IDEAS help define the value we bring to lead client relationships and in the capabilities that we develop
on our team or through partnering with best-in-class product providers.
FINANCIAL HIGHLIGHTS
SHAREHOLDERS EQUITY
TIER 1 CAPITAL RATIO
%
66
64
62
60
58
56
54
52
50
0
$64.0
$59.1
$55.3
2017
2018
Rounded $MM as of December 31
2019
20
15
%
10
5
0
13.43%
14.73%
15.26%
2017
2018
2019
As of December 31
freedom.bank
00DFDDF
A LETTER TO OUR SHAREHOLDERS
March 15, 2020
Dear Shareholders:
On behalf of our directors and officers, we are pleased to present our 2019 Annual Report that highlights our financial
performance. Our new strategic plan has transformed our company over the past year and has helped position us for
growth and improved profitability going forward. As 2020 gets underway, we are seeing very challenging operating
conditions and extreme global economic and capital markets volatility. We are fortunate to have a very strong credit
profile and abundant capital to support our clients during this anxious time.
Freedom Bank is operating as a model of the community bank of the future with seven key strategic initiatives focused
on industry verticals, regional markets, lending products, treasury service products, capital market products, digital
capabilities, and strategic transactions. The initiatives are coming together to enable us to build a banking franchise
with great potential and are captured in some of the client success stories displayed on the inside back cover of this
annual report. These affirmations from our clients reinforce the power and potential of our model.
We were excited to welcome three new directors to Freedom Bank’s Board of Directors and have made huge strides
to improve our corporate structure and information systems to better manage growth going forward. We also
substantially improved our infrastructure in 2019 and put the company back in the position to grow both organically
and with new sales offices and fee-based businesses to better leverage our capital going forward.
You may have noticed that we have made significant investments in branding and technology with a new “torch”
logo mark, freedom.bank URL, website, on-line banking system, and fully-digital mortgage platform. We launched
our new value set: IDEAS (Innovation, Discipline, Experience, Attitude, and Service) to ensure that all of our associates
have a unified understanding of our culture. We also ran a year-long advertising campaign with these themes along
with client success stories to help communicate our commitment to clients.
We have strengthened our banking team with new Market Executives for Fairfax, Loudoun, and Prince William
Counties and restructured Industry Verticals focused on Government Contracting, Insurance, and Non-Profits. We
also created a dedicated Commercial Real Estate Group and added a new Head of Treasury Management. We are
also excited to expand our bank’s footprint with the announcement of our new sales office in Prince William County
opening in the second quarter of 2020.
The investments in our people and technology have positioned us to now return to balance sheet growth in 2020,
which will enable us to further improve financial results for shareholders. We have a contemporary strategic plan and
extremely strong financial condition for success going forward. As our competitors get larger and undertake mergers,
they cannot provide an entrepreneurial environment for employees, unique experience for clients, or engagement
with local communities in a way that we can execute at Freedom Bank.
Our financial results in 2019 demonstrate the progress we are making as the company returned to solid levels of
profitability with net income of $2.7 million or $0.37 per diluted share compared to net income of $0.2 million
or $0.03 per diluted share in 2018. Return on assets of 0.55% also improved compared to 0.04% in 2018. Our
total assets again exceeded $500 million and increased 4.5% compared to the prior year with over $100 million in
new loan originations. Our mortgage division also had a stellar year with over $170 million in residential mortgage
originations and gain on sale revenue with related fee income increased by 50% to $4.8 million.
A LETTER TO OUR SHAREHOLDERS
01
A LETTER TO OUR SHAREHOLDERS (CONT.)
However, we did not achieve our budget expectations on some key performance metrics. Like most of the investment
community, we were expecting two rate hikes by the Federal Reserve at the outset of 2019, but ended the year with
three rate cuts. The 10-year treasury rate has declined by 40% from 2.5% in January 2019 to 1.5% at calendar year-
end, and has obviously continued to decline in 2020. The reduction in market interest rates translated into an overall
decline in our net interest income by 8.7% compared to 2018 and we saw our net interest margin decline by 5 basis
points to 3.47%. We were able to overcome the pressure on our top line by reducing non-interest expenses by $1.2
million during the year.
Freedom Bank has more work to do to achieve our long run financial objectives. We have been focused on improving
our funding costs, which declined to 1.5% in the fourth quarter, and reducing non-interest expenses. The bank’s
efficiency ratio improved from 97% in 2018 to 84% in 2019. We strengthened asset quality as non-accrual loans
were reduced by 50% to 0.42% of total loans. We also have a very strong balance sheet with a Tier 1 Capital Ratio
of 15.3% and a very healthy loan loss reserve at 1.05% of total loans. These are among the strongest metrics of any
bank in the Washington DC MSA.
Obviously, market conditions have become even more challenging with significant economic impacts of the
Coronavirus pandemic. Both equity and fixed income markets expect a significant slowdown in the economy leading
to a recent precipitous decline in bank stocks and long-term interest rates. Freedom Bank’s efforts to invest in our
people, maintain strong liquidity, strengthen our balance sheet, improve the bank’s credit profile, and reduce non-
interest expenses should serve us well in this environment.
We are excited by our forward focus in 2020. Freedom Bank now possesses a strong team of banking professionals,
enjoys a dynamic and growing group of clients, and serves a robust and caring set of communities, which together
will enable us to deliver attractive returns to shareholders over time. We continue to work hard to continue to earn
your confidence.
Experience Innovation – Bank with Freedom.
Sincerely,
H. JASON GOLD
Chairman of the Board
JOSEPH J. THOMAS, CFA
President & CEO
02 A LETTER TO OUR SHAREHOLDERS
INDEPENDENT AUDITOR’S REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the board of directors of Freedom Bank of Virginia
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of The Freedom Bank of Virginia (the “Company”)
as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income,
stockholders’ equity and cash flows for the years ended December 31, 2019 and 2018, and the related notes (collectively
referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2019 and 2018, and the results of their operations and their
cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
BASIS FOR OPINION
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
We have served as the Company’s auditor since 2017.
Gaithersburg, Maryland
March 12, 2020
INDEPENDENT AUDITOR’S REPORT
03
FINANCIAL STATEMENTS
BALANCE SHEETS
December 31
2019 and 2018
ASSETS
Cash and Due from Banks
Interest Bearing Deposits with Banks
Securities Available-for-Sale
Restricted Stock Investments
Loans Held for Sale
Loans Receivable
Allowance for Loan Losses
Net Loans
Bank Premises and Equipment, net
Accrued Interest Receivable
Deferred Tax Asset
Bank-Owned Life Insurance
Right of Use Asset, net
Other Assets
TOTAL ASSETS
2019
$ 927,322
2018
$ 1,270,559
24,735,085
14,376,684
49,854,912
48,204,339
3,752,750
11,656,802
3,076,000
4,415,520
392,941,874
394,080,457
(4,121,693)
(4,572,393)
388,820,181
389,508,064
1,480,535
1,278,037
857,698
1,748,935
1,229,534
1,247,513
12,783,605
12,401,317
2,928,546
1,317,201
-
1,336,522
$500,392,674
$478,814,987
NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements.
04
FINANCIAL STATEMENTS
LIABILITIES
Deposits
Demand Deposits
Non-Interest Bearing
Interest Bearing
Savings Deposits
Time Deposits
Total Deposits
Federal Home Loan Bank Advances
Other Accrued Expenses
Lease Liability
Accrued Interest Payable
TOTAL LIABILITIES
STOCKHOLDERS' EQUITY
Preferred Stock, $0.01 par value, 5,000,000 shares authorized;
0 shares issued and outstanding, 2019 and 2018
Common Stock, $0.01 par value, 25,000,000 shares:
23,000,000 shares voting and 2,000,000 shares non-voting
Voting Common Stock:
6,548,046 and 6,423,602 shares issued and outstanding
at December 31, 2019 and 2018, respectively (includes 120,500
and 115,000 unvested shares, respectively)
Non-Voting Common Stock:
673,000 shares issued and outstanding
at December 31, 2019 and 2018, respectively
Additional Paid-in Capital
Accumulated Other Comprehensive Loss, net
Retained Earnings
Total Stockholders’ Equity
2019
2018
$ 80,630,053
$ 67,012,857
112,605,618
128,403,358
2,153,939
3,023,239
199,821,006
202,292,311
395,210,616
400,731,765
35,857,143
17,142,857
1,883,782
2,981,132
433,586
1,607,491
-
218,537
$ 436,366,259
$ 419,700,650
-
-
64,275
63,086
6,730
6,730
58,526,913
57,416,068
(29,274)
(1,124,101)
5,457,771
2,752,554
64,026,415
59,114,337
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$500,392,674
$478,814,987
NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements.
FINANCIAL STATEMENTS 05
STATEMENTS OF OPERATIONS
Years Ended December 31
2019 and 2018
INTEREST INCOME
Interest and Fees on Loans
Interest on Investment Securities
Interest on Deposits with Banks
Interest on Federal Funds Sold
Total Interest Income
INTEREST EXPENSE
Interest on Deposits
Interest on Borrowings
Total Interest Expense
2019
$ 21,113,850
2018
$ 21,107,962
1,369,822
391,377
-
1,740,241
483,924
466
22,875,049
23,332,593
6,207,144
545,141
6,752,285
5,352,235
322,373
5,674,608
Net Interest Income
16,122,764
17,657,985
PROVISION FOR LOAN LOSSES
Net Interest Income After
Provision for Loan Losses
NON-INTEREST INCOME
Gain on Sale of Mortgage Loans
Service Charges and Other Income
Gain (Loss) on Sales of Investment Securities
Increase in Cash Surrender Value of
Bank-Owned Life Insurance
Total Non-Interest Income
NON-INTEREST EXPENSES
Officers and Employee Compensation and Benefits
Occupancy Expense
Equipment and Depreciation Expense
Insurance Expense
Professional Fees
Data and Item Processing
Business Development
Franchise Taxes
Mortgage Fees and Settlements
Other Operating Expense
Total Non-Interest Expenses
Income Before Income Taxes
194,500
406,000
15,928,264
17,251,985
4,083,717
836,401
105,722
382,288
5,408,128
2,679,861
676,241
(1,181,108)
63,171
2,238,165
11,347,119
11,654,250
1,142,845
1,098,985
891,384
118,226
1,106,208
885,836
336,282
629,989
843,191
858,874
664,284
438,813
2,026,109
1,249,830
245,294
635,162
498,411
830,158
18,159,954
19,341,296
3,176,438
148,854
NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements.
06 FINANCIAL STATEMENTS
INCOME TAX EXPENSE (BENEFIT)
NET INCOME
2019
471,221
2018
(42,423)
$ 2,705,217
$ 191,277
EARNINGS PER COMMON SHARE – BASIC
$ 0.38
$ 0.03
EARNINGS PER COMMON SHARE – DILUTED
$ 0.37
$ 0.03
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING – BASIC
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING – DILUTED
7,144,052
6,751,251
7,226,571
6,948,844
STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31
2019 and 2018
Net Income
Other Comprehensive Income (Loss):
Unrealized holding gains (losses) on securities available-for-sale
arising during the year, net of taxes of ($313,232) and $413,173 in
2019 and 2018, respectively
(Gains) losses on sales of securities available-for-sale, net of taxes
of $22,202 and ($248,033) in 2019 and 2018, respectively
Amortization of unrealized losses on securities transferred from
available-for-sale to held-to-maturity net of taxes of $18,830 in 2018
2019
2018
$ 2,705,217
$ 191,277
1,178,347
(1,554,314)
(83,520)
933,075
-
70,836
Total Other Comprehensive Income (Loss):
1,094,827
(550,403)
COMPREHENSIVE INCOME (LOSS)
$ 3,800,044
$ (359,126)
NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements.
FINANCIAL STATEMENTS 07
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31
2019 and 2018
Voting and Non-Voting
SHARES OF
COMMON
STOCK
COMMON
STOCK
ADDITIONAL
PAID-IN
CAPITAL
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
RETAINED
EARNINGS
TOTAL
STOCKHOLDERS'
EQUITY
BALANCE, DEC. 31, 2017
6,526,908
$ 65,269 $53,241,342
$ (573,698) $2,561,277
$55,294,190
Net income
Other comprehensive loss
-
-
-
-
-
-
Stock options exercised
315,903
3,159
2,241,842
Issuance of common stock
128,791
1,288
1,428,292
Restricted stock - vested
10,000
100
(100)
Stock-based compensation
- stock options
Stock-based compensation
- restricted stock
-
-
-
-
130,672
374,020
-
191,277
191,277
(550,403)
-
-
-
-
-
-
-
-
-
-
-
(550,403)
2,245,001
1,429,580
-
130,672
374,020
BALANCE, DEC. 31, 2018
6,981,602
69,816
57,416,068
$ (1,124,101)
2,752,554
59,114,337
Net income
Other comprehensive loss
Stock options exercised
Restricted stock - vested
Stock-based compensation
- stock options
Stock-based compensation
- restricted stock
-
-
93,944
25,000
-
-
-
-
939
250
-
-
-
-
663,305
(250)
36,020
411,770
-
2,705,217
2,705,217
1,094,827
-
-
-
-
-
-
-
-
-
1,094,827
664,244
-
36,020
411,770
BALANCE, DEC. 31, 2019
7,100,546
$ 71,005 $58,526,913
$ (29,274) $5,457,771
$64,026,415
NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements.
08 FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS
Years Ended December 31
2019 and 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Amortization of right of use asset
Provision for loan losses
Net amortization of available-for-sale securities
Net amortization of held-to-maturity securities
(Gains) losses on sales of investment securities
Gain on sale of mortgage loans
Loans held for sale originated
Proceeds from the sale of loans held for sale
Change in lease liability
Stock-based compensation expense
Gain on sale of other real estate owned
Deferred income tax expense (benefit)
Increase in cash surrender value of bank-owned life insurance
(Increase) decrease in:
Accrued interest receivable
Other assets
Increase in:
Other accrued expenses
Accrued interest payable
2019
$ 2,705,217
2018
$ 191,277
291,582
823,278
194,500
622,990
-
289,809
-
406,000
720,630
122,324
(105,722)
1,181,108
(4,083,717)
(3,168,195)
(176,560,647)
(120,543,245)
173,403,082
127,068,421
(770,692)
447,790
-
98,785
(382,288)
(48,503)
19,321
276,291
215,049
-
504,692
(4,097)
(126,589)
(63,171)
413,893
70,557
351,289
55,788
Net cash provided by Operating Activities
(2,853,684)
7,470,491
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in federal funds sold
Purchase of bank-owned life insurance
Net change in interest bearing deposits with banks
Loan (originations) payments, net
Purchased loans, net of payments
Purchase of available-for-sale securities
Maturities, calls and paydowns of securities available-for-sale
Proceeds from sales of securities available-for-sale
Proceeds from sale of other real estate owned
Purchase (sale) of restricted stock investments, net
Acquisition of bank premises and equipment
-
-
127,000
(10,000,000)
(10,358,401)
19,433,143
6,828,950
11,688,552
(6,335,567)
-
(18,993,533)
(7,015,763)
9,209,349
9,002,200
-
(676,750)
(23,182)
7,907,679
25,041,821
1,171,882
(542,500)
(443,169)
Net cash provided (used) in Investing Activities
(11,346,934)
47,368,645
NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements.
FINANCIAL STATEMENTS
09
STATEMENTS OF CASH FLOWS
Years Ended December 31
2019 and 2018
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in deposits, net
Advances from the Federal Home Loan Bank
2019
2018
$ (5,521,149)
$ (65,248,855)
52,350,000
39,000,000
Repayment of advances from the Federal Home Loan Bank
(33,635,714)
(32,285,714)
Proceeds from stock options
Proceeds from sale of stock, net
664,244
2,245,001
-
1,429,580
Net cash provided (used) in Financing Activities
13,857,381
(54,859,988)
Net increase (decrease) in cash and due from banks
(343,237)
106,191
Cash and due from banks, beginning of year
1,270,559
1,164,368
CASH AND DUE FROM BANKS, END OF YEAR
$ 927,322
$ 1,270,559
SUPPLEMENTAL NONCASH DISCLOSURES
Unrealized gain (loss) on securities available-for-sale, net
$ 1,385,860
$ (786,379)
Transfer of securities from held-to-maturity to available-for-sale
$ -
$ 5,072,984
Unrealized, unamortized loss on securities remaining prior to
transfer to available-for-sale, net
$ -
$ 89,666
Loans transferred to other real estate owned
$ -
$ 1,167,785
Right-of-use assets obtained in exchange for lease liabilities
$ 3,751,824
$ -
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest
Cash paid during the year for income taxes
$ 6,537,236
$ 5,618,820
$ 120,000
$ -
NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements.
10 FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
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 in the United States of America (GAAP) and reflect practices of the banking industry. The policies are
summarized below.
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of The Freedom Bank of Virginia and its formerly wholly-owned
subsidiary, FBV Capital Advisors Inc. (FBVCA), a broker-dealer in securities, together referred to as “the Bank”. 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, Chantilly 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.
In September 2018, FBVCA was sold through a stock purchase agreement. The Bank recorded $22,900 in legal fees related
to the transaction for the year ended December 31, 2018. Additionally, the Bank recorded a gain on sale of approximately
$38,000 for the year ended December 31, 2018.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of
America 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. Significant estimates affecting the Bank’s financial statements relate to
the allowance for loan losses, the valuation of the deferred tax assets and other-than-temporary impairment assessments for
investment securities. Actual results could differ from those estimates.
INTEREST BEARING DEPOSIT WITH BANKS
The Bank maintains interest bearing deposits with other institutions. Interest bearing deposits are valued at cost. Interest
income is recorded as interest income on deposits with banks.
INVESTMENT SECURITIES
Investment securities are classified as either held-to-maturity, available-for-sale or trading securities. In determining such
classification, securities that the Bank has the positive intent and ability to hold to maturity are classified as held-to-maturity
and are carried at amortized cost. Securities classified as available-for-sale are carried at estimated fair value with unrealized
gains and losses included in stockholders’ equity on an after tax basis. Trading securities are carried at estimated fair value
with unrealized gains and losses included in non-interest 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.
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.
FINANCIAL STATEMENTS
11
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.
INTEREST RATE LOCK COMMITMENT
The Bank enters into interest rate lock commitments (IRLCs) to originate residential mortgage loans for sale in the secondary
market whereby the interest rate on the loan is determined prior to funding. The period of time between issuance of a rate lock
commitment and closing and sale of the loan generally ranges from 15 to 75 days. The IRLCs with customers are considered
derivative financial instruments. The Bank recognizes derivative financial instruments at fair value as either an other asset or other
liability in the consolidated balance sheet. Because the IRLCs are not designated as hedging instruments, adjustments to reflect
unrealized gains and losses resulting from changes in fair value of the IRLCs are reported as noninterest income.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level that, in management’s judgment, is adequate to absorb probable
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. The Bank amortizes software over three years using the
straight-line method.
Expenditures for maintenance, repairs and improvements under $1,000 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.
12
FINANCIAL STATEMENTS
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 non-interest expense, 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 had no other real estate owned at December 31, 2019 and 2018.
BANK-OWNED LIFE INSURANCE
The Bank has entered into bank-owned single premium life insurance policies 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
The rights, preferences, and privileges of the voting and non-voting common stock shall be in all respects and for all purposes
identical except with respect to voting power. The holders of voting common stock shall exclusively possess all voting power
and each share is entitled to one vote. The holders of non-voting common stock have no voting power. Holders of common
stock are entitled to receive an equal amount of dividends per share when declared from time to time by the Board of
Directors.
Shares of non-voting common stock may be converted into shares of voting common stock at the option of the holder in
accordance with the provisions outlined in the amended articles of incorporation.
Shares of preferred stock may be issued in one or more series. Authority is expressly vested in the Board of Directors to cause
the preferred stock to be issued in one or more series and, to the fullest extent permitted by law, to fix and determine the
preferences, limitations and relative rights of the shares of any series of preferred stock so established and provide for the
issuance of shares thereof.
Comprehensive income 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.
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.
A valuation allowance is recorded if, based upon the evidence available, it is more likely than not some portion or all of the net
deferred tax assets will not be realized.
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 income tax returns of the Bank for 2016, 2017
and 2018 are subject to examination by income taxing authorities, generally for three years after they were filed.
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 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. Potential common shares that may be issued by the Bank relate solely to stock options
outstanding during the period and are determined using the treasury stock method.
FINANCIAL STATEMENTS
13
The following shows the weighted average number of shares used in computing earnings per common share and the effect
on the weighted average number of shares of potentially dilutive common stock.
Average number of common shares outstanding
Effect of dilutive options
Average number of common shares outstanding used to
calculate diluted earnings per common share
2019
2018
7,144,052
6,751,251
82,519
197,593
7,226,571
6,948,844
Stock options for 19,876 and 23,026 shares of common stock and restricted stock awards of 10,000 and 0 were not
considered in computing diluted earnings per common share for 2019 and 2018, respectively, because they were antidilutive.
Non-vested restricted common shares, which carry all rights and privileges of a common share with respect to the stock,
including the right to vote, were included in the basic and diluted per common share calculations.
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.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
ASU 2014-09
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue
from Contracts with Customers. The standard’s core principle is that a company will recognize revenue when it transfers
promised goods or services to customers in an amount that reflects the consideration to which the company expects to be
entitled in exchange for those goods or services. This standard also includes expanded disclosure requirements that result
in an entity providing users of the financial statements with comprehensive information about the nature, amount, timing,
and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. ASU 2014-09 is effective
for public business entities for fiscal years beginning after December 15, 2017. The Bank evaluated the overall impact on
affected revenue streams and any related contracts, including asset management fees, gains and losses on the sale of real
estate, deposit related fees and interchange fees. Based on this evaluation, the Bank determined that ASU 2014-09 did not
materially change the method in which revenue from impacted revenue streams was previously recognized. The Company
applied the guidance using a modified retrospective approach. This approach requires the application of the new guidance to
uncompleted contracts at the date of adoption. Periods prior to the date of adoption were not retrospectively revised as the
impact on uncompleted contracts at the date of adoption was not material.
ASU 2016-01
In January 2016, the FASB issued ASU 2016-01: Financial Instruments – Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities. The amendments in ASU 2016-01, among other things: 1) Requires
equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation
of the investee) to be measured at fair value with changes in fair value recognized in net income. 2) Requires public business
entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. 3) Requires
separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e.,
securities or loans and receivables). 4) Eliminates the requirement for public business entities to disclose the method(s) and
significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured
at amortized cost. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years. The amendments related to equity securities without readily determinable fair values
were applied prospectively to equity investments that exist as of the date of the adoption of the amendments. ASU 2016-01
requires the use of exit price rather than entrance price in determining the fair value of loans not measured at fair value on
a non-recurring basis in the consolidated balance sheets. See Note 12 – Fair Value Measurements for information regarding
14
FINANCIAL STATEMENTS
the change in the valuation of these loans. The adoption of ASU 2016-01 did not have a material impact on the Company’s
financial statements.
ASU 2016-02
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Among other things, in the amendments in ASU 2016-02,
lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement
date: (1) A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis;
and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the
lease term. Under the new guidance lessor accounting is largely unchanged. Certain targeted improvements were made to align,
where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.
The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type,
direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into
after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach
would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees
and lessors may not apply a full retrospective transition approach. The FASB made subsequent amendments to Topic 842 in July
2018 through ASU 2018-10 (“Codification Improvements to Topic 842, Leases”) and ASU 2018-11 (“Leases (Topic 842): Targeted
Improvements”). Among these amendments is the provision in ASU 2018-11 that provides entities with an additional (and optional)
transition method to adopt the new lease standard. Under this transition method, an entity initially applies the new leases standard
at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of
adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts
the new leases standard will continue to be in accordance with current GAAP (Topic 840, Leases). The effect of adopting this
standard on January 1, 2019 was an approximately $3.75 million increase in assets and liabilities on our balance sheet. See Note 11
for further information regarding the Bank’s leases.
ASU 2016-08
In March 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards
Codification to clarify the implementation guidance on principal versus agent considerations and address how an entity
should assess whether it is the principal or the agent in contracts that include three or more parties. The amendments were
effective for reporting periods beginning after December 15, 2017. These amendments did not have a material effect on the
financial statements.
ASU 2016-10
In April 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification
to clarify guidance related to identifying performance obligations and accounting for licenses of intellectual property. The
amendments were effective for the Company for reporting periods beginning after December 15, 2017. These amendments
did not have a material effect on the financial statements.
ASU 2016-12
In May 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification
to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments
were effective for the Company for reporting periods beginning after December 15, 2017. These amendments did not have a
material effect on the financial statements.
ASU 2016-13
In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for
certain debt securities. The guidance requires a financial asset (including trade receivables) measured at amortized cost basis
to be presented at the net amount expected to be collected. Thus, the income statement will reflect the measurement of
credit losses for newly-recognized financial assets as well as the expected increases or decreases of expected credit losses
that have taken place during the period. The amendments will be effective for the Company for fiscal years beginning after
December 15, 2022 including interim periods within those fiscal years. Early adoption is permitted for all organizations
beginning after December 15, 2018. The Company is currently in the process of evaluating the impact of adoption of this
guidance on the financial statements.
ASU 2016-15
In August 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification to clarify
how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments
were effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those
fiscal years. These amendments did not have a material effect on the financial statements.
ASU 2016-16
In October 2016, the FASB amended the Income Taxes topic of the Accounting Standards Codification to modify the
accounting for intra-entity transfers of assets other than inventory. The amendments were effective for the Company for fiscal
years beginning after December 15, 2017 including interim periods within those fiscal years. These amendments did not have
a material effect on the financial statements.
FINANCIAL STATEMENTS
15
ASU 2016-18
In November 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification to
clarify how restricted cash is presented and classified in the statement of cash flows. The amendments were effective for
the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. These
amendments did not have a material effect on the financial statements.
ASU 2016-20
In December 2016, the FASB issued technical corrections and improvements to the Revenue from Contracts with Customers
Topic. These corrections make a limited number of revisions to several pieces of the revenue recognition standard issued
in 2014. The effective date and transition requirements for the technical corrections were effective for the Company for
reporting periods beginning after December 15, 2017. The Company applied the guidance using a modified retrospective
approach. These amendments did not have a material effect on the financial statements.
ASU 2017-01
In January 2017, the FASB issued guidance to clarify the definition of a business with the objective of adding guidance
to assist entities with evaluating whether transactions should be accounting for as acquisitions (or disposals) of assets or
businesses. The amendment to the Business Combinations Topic is intended to address concerns that the existing definition
of a business has been applied too broadly and has resulted in many transactions being recorded as business acquisitions that
in substance are more akin to asset acquisitions. The guidance was effective for the Company for reporting periods beginning
after December 15, 2017. These amendments did not have a material effect on the financial statements.
ASU 2017-04
In January 2017, the FASB amended the Goodwill and Other Topic of the Accounting Standards Codification to simplify
the accounting for goodwill impairment for public business entities and other entities that have goodwill reported in their
financial statements and have not elected the private company alternative for subsequent measurement of goodwill. The
amendment removes the Step 2 of the goodwill impairment test. A goodwill impairment will not be the amount by which
a reporting unit’s carrying value exceeds it fair value, not to exceed the carrying amount of goodwill. The effective date and
transition requirements for the for the technical corrections will be effective for the Company for reporting periods beginning
after December 15, 2020. The Company does not expect these amendments to have a material effect on its financial
statements.
ASU 2015-05
In February 2017, the FASB amended the Other Income Topic of the Accounting Standards Codification to clarify the scope
of the guidance on nonfinancial asset derecognition as well as the accounting for partial sales of nonfinancial assets. The
amendments conform the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue
standard. The amendments were effective for the Company’s reporting periods beginning after December 15, 2017. These
amendments did not have a material effect on the financial statements.
ASU 2017-08
In March 2017, the FASB amended the requirements in the Receivables – Nonrefundable Fees and Other Costs Topic of the
Accounting Standards Codification related to the amortization period for certain purchased callable debt securities held at a
premium. The amendments shorten the amortization period for the premium to the earliest call date. The amendments will
be effective for the Company for interim and annual periods beginning after December 15, 2018. These amendments did not
have a material effect on the financial statements.
ASU 2018-02
In February 2018, the FASB amended the Income Statement – Reporting Comprehensive Income Topic of the Accounting
Standards Codification. The amendments allow a reclassification from accumulated other comprehensive income to retained
earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The amendments were effective for fiscal years
beginning after December 15, 2018, and interim periods within those fiscal years. These amendments did not have a material
effect on the financial statements.
ASU 2018-03
In February 2018, the FASB amended the Financial Instruments Topic of the Accounting Standards Codification. The
amendments clarify certain aspects of the guidance issued in ASU 2016-01. The amendments were effective for fiscal years
beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. All entities
may early adopt these amendments for fiscal years beginning after December 15, 2017, including interim periods within those
fiscal years, as long as they have adopted ASU 2016-01. These amendments did not have a material effect on the financial
statements.
ASU 2018-10
In July 2018, the FASB amended the Leases Topic of the Accounting Standards Codification to make narrow amendments
to clarify how to apply certain aspects of the new leases standard. The amendments are effective for reporting periods
beginning after December 15, 2018. These amendments did not have a material effect on the financial statements.
16
FINANCIAL STATEMENTS
ASU 2018-11
In July 2018, the FASB amended the Leases Topic of the Accounting Standards Codification to give entities another option for
transition and to provide lessors with a practical expedient. The amendments will be effective for the Company for reporting
periods beginning after December 15, 2018. These amendments did not have a material effect on the financial statements.
ASU 2018-13
In August 2018, the FASB amended the Fair Value Measurement Topic of the Accounting Standards Codification. The
amendments remove, modify, and add certain fair value disclosure requirements based on the concepts in the FASB Concepts
Statement, Conceptual Framework for Financial Reporting – Chapter 8: Notes to Financial Statements. The amendments are
effective for all entities for fiscal years, and interim periods within those fiscal years beginning after December 15, 2019. Early
adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU
and delay adoption of the additional disclosures until their effective date. The Company does not expect these amendments
to have a material effect on its financial statements.
ASU 2018-15
In August 2018, the FASB amended the Intangibles – Goodwill and Other Topic of the Accounting Standards Codification to
align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with
the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments
will be effective for the Company for fiscal years beginning after December 15, 2019. The Company does not expect these
amendments to have a material effect on its financial statements.
ASU 2018-16
In October 2018, the FASB amended the Derivatives and Hedging Topic of the Accounting Standards Codification to expand
the list of U.S. benchmark interest rates permitted in the application of hedge accounting. These amendments were effective
for the Company for fiscal years beginning after December 15, 2018. These amendments did not have a material effect on
the financial statements.
ASU 2018-17
In October 2018, the FASB amended the Consolidation topic of the Accounting Standards Codification for determining
whether a decision-making fee is a variable interest. The amendments require organizations to consider indirect interests held
through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its
entirety. The amendments will be effective for the Company for fiscal years beginning after December 15, 2019, and interim
periods within those fiscal years. Early adoption is permitted. The Company will apply a full retrospective approach in which
financial statements for each individual prior period presented and the opening balances of the earliest period presented are
adjusted to reflect the period-specific effects of applying the amendments. The Company does not expect these amendments
to have a material effect on its financial statements.
ASU 2018-18
In November 2018, the FASB amended the Collaborative Arrangements Topic of the Accounting Standards Codification to
clarify the interaction between the guidance for certain collaborative arrangements and the new revenue recognition financial
accounting and reporting standard. The amendments will be effective for fiscal years beginning after December 15, 2019 and
interim periods within those fiscal years. Early adoption is permitted. The company does not expect these amendments to
have a material effect on its financial statements.
ASU 2018-20
In December 2018, the FASB issued guidance that provided narrow-scope improvements for lessors in the accounting for
sales, use and similar taxes, the accounting for other costs paid by a lessee that may benefit a lessor, and variable payments
when contracts have lease and non-lease components. The amendments were effective for the Company for reporting
periods beginning after December 15, 2018 including interim periods within those fiscal years. These amendments did not
have a material effect on the financial statements.
ASU 2019-01
In March 2019, the FASB issued guidance to address concerns companies had raised about an accounting exception they
would lose when assessing the fair value of underlying assets under the leases standard and clarify that leases and lessors
are exempt from a certain interim disclosure requirement associated with adopting the new standard. The amendments will
be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted. The
Company does not expect these amendments to have a material effect on its financial statements.
ASU 2019-04
In April 2019, the FASB issued guidance that clarifies and improves areas of guidance related to recently issued standards
of credit losses, hedging, and recognition and measurement of financial instruments. The amendments related to credit
losses will be effective for the Company for reporting periods beginning after December 15, 2020. The amendments
related to hedging were effective for the Company for interim and annual periods beginning after December 15, 2018.
The amendments related to recognition and measurement of financial instruments will be effective for the Company for
fiscal years after December 15, 2019 including interim periods within those years. The Company does not expect these
amendments to have a material effect on its financial statements.
FINANCIAL STATEMENTS
17
ASU 2019-05
In May 2019, the FASB issued guidance to provide entities with an option to irrevocable elect the fair value option, applied on
an instrument-by-instrument basis for eligible instruments, upon adoption of ASU 2016-13, Measurement of Credit Losses on
Financial Instruments. The amendments will be effective for the Company for reporting periods beginning after December 15,
2020. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2019-10
In November 2019, the FASB issued guidance to defer the effective dates for private companies, not-for-profit organizations,
and certain smaller reporting companies applying standards on current expected credit losses (CECL). The new effective dates
will be fiscal years beginning after December 15, 2022 including interim periods within those fiscal years;
ASU 2019-11
In November 2019, the FASB issued guidance that addresses issues raised by stakeholders during the implementation of
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The
amendments affect a variety of Topics in the Accounting Standards Codification. The amendments are effective for fiscal
years beginning after December 15, 2022 including interim periods within those fiscal years. Early adoption is permitted in
any interim period as long as an entity has adopted the amendments in ASU 2016-13. The Company does not expect these
amendments to have a material effect on its financial statements.
ASU 2019-12
In December 2019, the FASB issued guidance to simplify accounting for income taxes by removing specific technical
exceptions that often produce information investors have a hard time understanding. The amendments also improve
consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.
The amendments are effective for fiscal years beginning after December 15, 2020 including interim periods within those
years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its
financial statements.
RECLASSIFICATION
Certain items in the 2018 financial statements have been reclassified to conform to the 2019 financial statement presentation.
SUBSEQUENT EVENTS
The date to which events occurring after December 31, 2019, the date of the most recent balance sheet, have been evaluated
for possible adjustment to the financial statements or disclosure is March 12, 2020, 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, 2019 and 2018 was $2,069,000 and $1,737,000, respectively.
3. Investments
The amortized cost and fair values of securities as shown in the balance sheets of the Bank are as follows:
DEC. 31, 2019
Available-for-sale
Corporate notes
Mortgage backed securities
Municipal securities - tax exempt
Municipal securities - taxable
SBA loan pools
Total Available-for-sale
AMORTIZED
COST
GROSS
UNREALIZED
GAINS
GROSS
UNREALIZED
LOSSES
FAIR
VALUE
$ 7,052,733
$ 27,281
$ (34,909)
$ 7,045,105
33,363,136
119,806
(140,309)
33,342,633
4,419,299
309,823
4,746,976
64,847
6,696
14,549
-
-
4,484,146
316,519
(95,016)
4,666,509
$ 49,891,967
$ 233,179
$ (270,234)
$ 49,854,912
18
FINANCIAL STATEMENTS
DEC. 31, 2018
Available-for-sale
Corporate notes
Mortgage backed securities
Municipal securities - tax exempt
SBA loan pools
Total Available-for-sale
AMORTIZED
COST
GROSS
UNREALIZED
GAINS
GROSS
UNREALIZED
LOSSES
FAIR
VALUE
$ 3,758,201
$ 22,592
$ (84,964)
$ 3,695,829
35,789,803
15,956
(895,425)
34,910,334
5,070,380
5,008,870
-
2,828
(354,836)
(129,066)
4,715,544
4,882,632
$ 49,627,254
$ 41,376
$ (1,464,291)
$ 48,204,339
The amortized cost and estimated fair value of debt securities at December 31, 2019, 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
AVAILABLE-FOR-SALE
AMORTIZED COST
FAIR VALUE
$ -
$ -
502,411
503,156
9,422,657
9,404,877
6,603,763
6,604,246
16,528,831
16,512,279
Mortgage backed securities
33,363,136
33,342,633
$49,891,967
$49,854,912
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, 2019 and 2018, the Bank had U.S. Government and agency securities and/or mortgage backed securities
with carrying values of $1,527,243 and $0, respectively, which 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, 2019, aggregated by investment category
and length of time that individual securities have been in a continuous loss position, is as follows:
Available-for-sale
Corporate notes
LESS THAN 12 MONTHS
OVER 12 MONTHS
GROSS
UNREALIZED
LOSSES
FAIR VALUE
GROSS
UNREALIZED
LOSSES
FAIR VALUE
$ 12,575
$ 1,786,265
$ 22,334
$ 977,666
Mortgage backed securities
23,377
1,827,537
116,932
13,563,839
SBA loan pools
TOTALS
-
-
95,016
2,885,657
$ 35,952
$ 3,613,802
$ 234,282
$ 17,427,162
FINANCIAL STATEMENTS
19
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, 2019, 6 debt securities with an unrealized loss for less than one year and 32 debt securities with an
unrealized loss for greater than one year depreciated approximately 1.27 percent from the Bank’s amortized cost basis. 25 of
the securities are secured by Federal agency mortgage backed securities or U.S. Treasury obligations and direct obligations
of U.S. Government agencies, 4 of the securities are corporate bonds, 8 are private-label collateralized mortgage obligations,
and 1 is a marketable certificate of deposit. 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.
In 2018, the Bank transferred 29 municipal securities from held-to-maturity to available-for-sale. Based on changes in the
current rate environment, management elected this change in an effort to more effectively manage the investment portfolio,
including subsequently selling some securities that were formerly classified as held-to-maturity. The amortized cost of the
securities that were transferred totaled $14.5 million and the net unrealized loss related to these securities totaled $608,000
on the date of transfer. This was a one-time transfer, done in accordance with ASU 2017-02, and management does not
believe that it has tainted its held to maturity classification.
The Bank received $9,002,200 in proceeds from available for sale securities during the year ended December 31, 2019. As a
result, the Bank recognized $116,244 million in gross gains and $10,522 in gross losses for the year ended December 31, 2019.
Restricted investments consist of the following at December 31:
Federal Reserve Bank stock
Federal Home Loan Bank stock
Community Bankers Bank stock
TOTALS
4. Loans Receivable
Loans receivable include the following at December 31:
Commercial and industrial
Real estate - commercial
Real estate - construction
Real estate - residential
Consumer and other
Subtotals
Deferred loan fees, net
TOTALS
2019
2018
$ 1,731,750
$ 1,710,300
1,955,000
1,299,700
66,000
66,000
$ 3,752,750
$ 3,076,000
2019
2018
$ 76,796,738
$ 76,919,421
216,273,591
191,543,985
13,771,761
32,335,250
64,629,464
67,991,855
21,564,096
25,506,991
393,035,650
394,297,502
(93,776)
(217,045)
$ 392,941,874
$ 394,080,457
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
20
FINANCIAL STATEMENTS
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 – construction loans: This portfolio consists of commercial and residential construction loans secured by real
estate. The loans are secured by property and generally made with a loan-to-as-built and loan-to-as-completed value not
exceeding 75 percent.
Real estate - residential and home equity loans: This portfolio consists of residential first and second mortgage 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.
Consumer loans: This portfolio consists of car loans, boat loans, loans secured by stock and unsecured loans. The consumer
loans are generally made to borrowers with a minimum credit score of 700 and a maximum debt to income ratio of 40%.
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 2019
Allowance for Loan Losses
COMMERCIAL
& INDUSTRIAL
REAL ESTATE -
COMMERCIAL
REAL ESTATE -
CONSTRUCTION
REAL ESTATE -
RESIDENTIAL
CONSUMER
TOTAL
Beginning balance
$ 834,126
$ 2,473,145
$ 452,106
$ 649,804 $ 163,212
$ 4,572,393
Charge-offs
Recoveries
Provision
(674,448)
28,748
617,192
-
-
-
-
-
500
-
-
76,810
(288,848)
(176,733)
(33,921)
(674,448)
29,248
194,500
Ending Balance
$ 805,618
$ 2,549,955
$ 163,258
$ 473,571 $ 129,291
$ 4,121,693
Individually evaluated for impairment
-
-
-
-
-
-
Collectively evaluated for impairment
805,618
2,549,955
163,258
473,571
129,291
4,121,693
Loans Receivable
Ending Balance
$ 76,796,738 $ 216,273,591
$ 13,771,761
$ 64,629,464 $ 21,564,096
$ 393,035,650
Individually evaluated for impairment $ 501,659 $ 7,730,407
$ -
$ 3,910,099 $ -
$ 12,142,165
Collectively evaluated for impairment
76,295,079
208,543,184
13,771,761
60,719,365
21,564,096
380,893,485
YEAR 2018
Allowance for Loan Losses
COMMERCIAL
& INDUSTRIAL
REAL ESTATE -
COMMERCIAL
REAL ESTATE -
CONSTRUCTION
REAL ESTATE -
RESIDENTIAL
CONSUMER
TOTAL
Beginning balance
$ 767,017
$ 2,464,708
$ 864,183
$ 368,319
$ 98,143
$ 4,562,370
Charge-offs
Recoveries
Provision
Reclassification1
Ending Balance
-
-
-
-
(191,453)
-
-
-
(165,249)
(356,702)
525
525
67,109
8,437
(220,624)
321,285
229,793
406,000
-
-
-
(39,000)
-
(39,800)
$ 834,126
$ 2,473,145
$ 452,106
$ 649,804
$ 163,212
$ 4,572,393
Individually evaluated for impairment
-
-
-
-
-
-
Collectively evaluated for impairment
834,126
2,473,145
452,106
649,804
163,212
4,572,393
Loans Receivable
Ending Balance
$ 76,919,421
$191,543,985
$ 32,335,250
$ 67,991,855
$ 25,506,991
$394,297,502
Individually evaluated for impairment
$ 1,185,111
$ 3,185,852
$ 500,000
$ 2,824,302
-
$ 7,695,265
Collectively evaluated for impairment
75,734,310
188,358,133
31,835,250
65,167,553
25,506,991
386,602,237
1 The reclassification in the prior year relates to the removal of a reserve that was originally posted for the mortgage loans held-
for-sale portfolio. This reserve is now appropriately recorded in Other Liabilities on the Balance Sheet.
FINANCIAL STATEMENTS
21
An analysis of non-accrual and past due loans is as follows at December 31:
YEAR 2019
30-59 DAYS
PAST DUE
60-89 DAYS
PAST DUE
90 DAYS
OR MORE
PAST DUE
TOTAL
PAST DUE
CURRENT
TOTAL LOANS
RECEIVABLE
NONACCRUAL
LOANS
Commercial and industrial
$ - $ - $ - $ - $ 76,796,738 $ 76,796,738
$ 31,433
Real estate - commercial
614,857
- 4,001,558
4,616,415
211,657,176
216,273,591
Real estate - construction
Real estate - residential
-
-
-
-
-
13,771,761
13,771,761
- 2,166,825
2,166,825
62,462,639
64,629,464
1,670,228
Consumer
TOTALS
YEAR 2018
124,157
243,425
57,430
425,012
21,139,084
21,564,096
-
$ 739,014 $ 243,425 $ 6,225,813 $ 7,208,252 $385,827,398 $393,035,650
$ 1,701,661
Commercial and industrial
$ 355,727 $ 220,352 $ - $ 576,079 $ 76,343,342 $ 76,919,421
$ 503,794
-
-
Real estate - commercial
-
Real estate - construction
1,575,669
Real estate - residential
853,813
-
Consumer
TOTALS
-
-
-
-
-
-
191,543,985
191,543,985
-
500,000
2,075,669
30,259,581
32,335,250
500,000
-
-
853,813
67,138,042
67,991,855
1,808,766
-
25,506,991
25,506,991
-
$ 2,785,209 $ 220,352 $ 500,000 $ 3,505,561 $390,791,941 $394,297,502
$ 2,812,560
An analysis of impaired loans based on loan segment is as follows at December 31:
YEAR 2019
With no related allowance recorded:
RECORDED
INVESTMENT
UNPAID
PRINCIPAL
BALANCE
RELATED
ALLOWANCE
FOR LOAN
LOSSES
AVERAGE
RECORDED
INVESTMENT
INTEREST
INCOME
RECOGNIZED
Commercial and industrial
$ 501,659
$ 510,000
$ -
$ 594,301
$ 32,512
Real Estate - commercial
Real Estate - construction
Real Estate - residential
Consumer
With an allowance recorded:
Commercial and industrial
Real Estate - commercial
Real Estate - construction
Real Estate - residential
Consumer
TOTAL
7,730,407
7,730,407
-
-
3,910,099
3,978,099
-
-
-
-
-
-
-
-
-
-
-
-
Commercial and industrial
501,659
510,000
Real Estate - commercial
7,730,407
7,730,407
Real Estate - construction
-
-
Real Estate - residential
3,910,099
3,978,099
Consumer
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,843,183
372,706
-
-
3,797,394
204,121
-
-
-
-
-
-
-
-
-
-
-
-
594,301
7,843,183
-
32,512
372,706
-
3,797,394
204,121
-
-
$ 12,142,165
$ 12,218,506
$ -
$ 12,234,878
$ 609,339
22
FINANCIAL STATEMENTS
YEAR 2018
With no related allowance recorded:
RECORDED
INVESTMENT
UNPAID
PRINCIPAL
BALANCE
RELATED
ALLOWANCE
FOR LOAN
LOSSES
AVERAGE
RECORDED
INVESTMENT
INTEREST
INCOME
RECOGNIZED
Commercial and industrial
$ 1,185,111
$ 1,308,693
$ -
$ 1,195,950
$ 63,687
Real Estate - commercial
Real Estate - construction
Real Estate - residential
Consumer
With an allowance recorded:
Commercial and industrial
Real Estate - commercial
Real Estate - construction
Real Estate - residential
Consumer
TOTAL
3,185,852
3,185,852
500,000
500,000
2,824,302
2,848,237
-
-
-
-
-
-
-
-
-
-
-
-
Commercial and industrial
1,185,111
1,308,693
Real Estate - commercial
3,185,852
3,185,852
Real Estate - construction
500,000
500,000
Real Estate - residential
2,824,302
2,848,237
Consumer
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,231,715
500,000
3,289,832
147,545
16,389
199,735
-
-
-
-
-
-
-
-
-
-
-
-
1,195,950
3,231,715
500,000
3,289,832
-
63,687
147,545
16,389
199,735
-
$ 7,695,265
$ 7,842,782
$ -
$ 8,217,497
$ 427,356
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.
An analysis of the credit quality indicators is as follows at December 31:
YEAR 2019
PASS
SPECIAL MENTION
SUBSTANDARD
DOUBTFUL
LOSS
Commercial and industrial
$ 74,002,420
$ 2,292,659
$ 501,659
$ -
$ -
Real estate - commercial
203,146,833
5,396,351
7,730,407
Real estate - construction
12,995,055
60,222,768
21,564,096
776,706
496,597
-
-
3,910,099
-
-
-
-
-
-
-
-
-
$ 371,931,172
$ 8,962,313
$ 12,142,165
$ -
$ -
PASS
SPECIAL MENTION
SUBSTANDARD
DOUBTFUL
LOSS
Real estate - residential
Consumer
TOTALS
YEAR 2018
Commercial and industrial
$ 74,858,816
$ 1,025,857
$ 1,034,748
$ -
$ -
Real estate - commercial
184,916,352
3,441,781
3,185,852
Real estate - construction
31,835,250
-
500,000
Real estate - residential
Consumer
TOTALS
62,471,813
25,506,991
2,671,805
2,848,237
-
-
-
-
-
-
-
-
-
-
$ 379,589,222
$ 7,139,443
$ 7,568,837
$ -
$ -
FINANCIAL STATEMENTS
23
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.
As of December 31, 2019 and December 31, 2018, the Bank had a recorded investment in troubled debt restructurings of $0
and $534,405, respectively. The Bank allocated no specific allowance for those loans at December 31, 2019 and December
31, 2018. Concessions granted to borrowers include changes in interest rates, maturity dates and/or payment amounts or
some combination of each. There were two credits classified as a TDR in the prior year which defaulted during the year ended
December 31, 2019. These two credits were charged off in full and recognized through the allowance for loan losses reserve.
The third credit comprising the TDR balance at December 31, 2018 was paid in full.
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 $5,119,203 and $8,702,545 at December 31, 2019 and 2018,
respectively. New loans made to such related parties amounted to $0, and repayments amounted to $111,757 in 2019. Two
loans with an aggregate balance of $1,262,192 at December 31, 2018 were paid in full during the year ended December 31,
2019. Additionally, five loans with an aggregate balance of $2,209,393 at December 31, 2019 were removed from related party
classification due to the retirement of the respective director during the year ended December 31, 2019.
5. Bank Premises and Equipment
Bank premises and equipment include the following:
Furniture and equipment
Leasehold improvements
Construction in progress
Software
Total Cost
Less accumulated depreciation
2019
2018
$ 1,809,589
$ 1,802,846
1,455,267
1,452,819
-
218,014
18,720
185,303
3,482,870
3,459,688
(2,002,335)
(1,710,753)
NET BANK PREMISES AND EQUIPMENT
$ 1,480,535
$ 1,748,935
Depreciation and amortization of bank premises and equipment charged to expense amounted to $291,582 and $289,809 in
2019 and 2018, respectively.
6. Deposits
The following are time deposits maturing in years ending December 31:
2020
2021
2022
2023
2024
2025 AND THEREAFTER
TOTAL
$ 106,149,720
68,167,326
22,966,740
1,839,184
648,232
49,804
$ 199,821,006
Time deposits in denominations that meet or exceed the FDIC minimum limit of $250,000 or more totaled $84,141,774 and
$83,457,849 at December 31, 2019 and 2018, respectively.
The Bank held related party deposits of approximately $2,516,144 and $6,442,635 at December 31, 2019 and 2018, respectively.
24 FINANCIAL STATEMENTS
7. Borrowings and Advances
The Company’s borrowings from the Federal Home Loan Bank of Atlanta (FHLB) were $35.9 million and $17.1 million at
December 31, 2019 and 2018, respectively. At December 31, 2019 and 2018, the weighted average rates on FHLB advances
were 1.69% and 2.05%, respectively. These advances were secured by a blanket collateral agreement with the FHLB pledging
the Bank’s portfolio of residential first mortgage loans with a collateral value of $99.3 million and $79.4 million.
FHLB advances are subject to prepayment penalties. During the year ended December 31, 2019 and 2018, the Company
prepaid no FHLB advances.
Callable advances are callable at the option of the FHLB. If an advance is called, the Bank has the option to pay off the
advance without penalty, re-borrow funds on different terms, or convert the advance to a three-month floating rate advance
tied to LIBOR. The Bank had $10 million in callable FHLB advances with a weighted average rate of 1.04% at December 31,
2019. There were no callable advances at December 31, 2018.
Advances from the FHLB are summarized by year of maturity and weighted average interest rate at December 31, 2018:
2020
2021
2022
2023
2024
2025 AND THEREAFTER
TOTAL
8. Income Taxes
Year-end deferred tax assets and liabilities were due to the following:
Deferred tax assets
Allowance for loan losses
Unearned loan fees and costs, net
Accrued compensation
Non-accrual loan interest
Unrealized losses on securities
Restricted Stock
Mark to market adjustment
Lease Liability
Net operating loss carryforward
Other
Deferred Tax Liabilities
Depreciation
Right of use asset
Interest rate lock
Net deferred tax assets
AMOUNT
WEIGHTED
AVERAGE RATE
$ 5,500,000
15,750,000
4,607,143
-
-
2.20%
1.85%
2.12%
n/a
n/a
10,000,000
0.95%
$ 35,857,143
2019
2018
$ 804,265
$ 852,944
19,693
115,360
16,032
7,782
75,440
45,760
626,038
-
14,427
45,579
114,418
6,000
298,812
52,903
-
-
193,941
11,803
1,724,797
1,576,400
206,181
614,995
45,923
867,099
304,636
-
24,251
328,887
$ 857,698
$ 1,247,513
FINANCIAL STATEMENTS 25
Income tax expense (benefit) was as follows:
Current tax expense
Deferred tax expense (benefit)
2019
$ 372,436
2018
$ 84,166
98,785
(126,589)
$ 471,221
$ (42,423)
Effective tax rates differ from the federal statutory rate of 21% for 2019 and 2018, which is applied to income before income
taxes due to the following:
Federal statutory rate times financial statement income
Effect of:
Tax-exempt income, net of disallowance
Earnings from bank-owned life insurance
Stock compensation
Other
2019
$ 667,052
2018
$ 31,259
(54,213)
(80,280)
(2,455)
(58,883)
(111,618)
(13,266)
(69,659)
120,861
$ 471,221
$ (42,423)
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 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). Management believes, as of December 31, 2019
and, 2018, that the Bank meets all the capital adequacy requirements to which it is subject.
As of December 31, 2019, 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,
CET1 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.
26
FINANCIAL STATEMENTS
The Bank’s actual capital amounts and ratios as of December 31, 2019 and 2018 are as follows:
ACTUAL
FOR CAPITAL
ADEQUACY PURPOSES
MINIMUM TO BE WELL
CAPITALIZED UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
AMOUNT
RATIO
AMOUNT
RATIO
AMOUNT
RATIO
$68,177,383
16.24%
$33,589,104
8.00%
$41,986,381
10.00%
$64,055,691
15.26%
$25,191,828
6.00%
$33,589,104
8.00%
$64,055,691
15.26%
$18,893,871
4.50%
$27,291,147
6.50%
$64,055,691
12.80%
$20,013,080
4.00%
$25,016,350
5.00%
$64,810,831
15.85%
$32,712,769
8.00%
$40,890,961
10.00%
$60,238,439
14.73%
$24,534,577
6.00%
$32,712,769
8.00%
$60,238,439
14.73%
$18,400,932
4.50%
$26,579,125
6.50%
$60,238,439
12.16%
$19,821,838
4.00%
$24,777,298
5.00%
DEC. 31, 2019
Total Capital
(to Risk Weighted Assets)
Tier 1 Capital
(to Risk Weighted Assets)
Common Equity Tier 1 Capital
(to Risk Weighted Assets)
Tier 1 Capital
(to Adjusted Average Assets)
DEC. 31, 2018
Total Capital
(to Risk Weighted Assets)
Tier 1 Capital
(to Risk Weighted Assets)
Common Equity Tier 1 Capital
(to Risk Weighted Assets)
Tier 1 Capital
(to Adjusted Average Assets)
10. Stock Option & Equity Plan
In 2007, the Bank established the 2007 stock option and equity plan (the Plan) for executives, other employees, officers,
directors and consultants. Shares have been reserved for issuance by the Bank upon the grant of stock options or restricted
stock awards. Shares issued under the Plan may be granted at not less than 100 percent of the fair market value at the
grant date. The shareholders approved increasing the number of authorized shares by 200,000 and 200,000 at the August
2018 and March 2016 annual meetings, respectively. The authorized and granted options under the Plan are as follows at
December 31, 2019:
2007 Plan
AUTHORIZED
GRANTED
1,075,280
813,485
VESTED
680,208
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, 2019, there was approximately $15,113 in unrecognized
compensation expense related to non-vested stock options that are expected to be recognized over a weighted average
period of 0.72 years. At December 31, 2018, there was approximately $103,944 in unrecognized compensation expense
related to non-vested share-based compensation.
FINANCIAL STATEMENTS
27
The following summarizes the option activity under the Plan:
NUMBER OF
SHARES
WEIGHTED
AVERAGE
EXERCISE PRICE
OUTSTANDING, DECEMBER 31, 2017
696,779
$ 7.01
Grants
Expired
Canceled or expired
OUTSTANDING, DECEMBER 31, 2018
Grants
Exercised
Expired
Forfeited
OUTSTANDING, DECEMBER 31, 2019
-
(315,903)
(50,420)
330,456
-
(93,944)
(59,228)
(10,250)
167,034
-
7.11
8.69
6.67
-
7.07
6.03
9.98
$ 6.47
There were no stock options granted during the years ended December 31, 2019 and 2018. The weighted average remaining
contractual life of options outstanding as of December 31, 2019 is 2.72 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 expected volatility is based on the average of the historical volatility of peer institutions and the Bank. 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 of zero.
During the year ended December 31, 2019, 35,500 voting common shares of restricted stock were granted to Bank
employees. All 35,500 shares were granted as part of a time-based restricted stock agreement. These restricted shares cliff
vest over a three year period based on their date of grant.
During the year ended December 31, 2018, 125,000 voting common shares of restricted stock were granted to two
executives in connection with their overall compensation plan. 50,000 shares were granted September 25, 2018 as part of
a performance-based restricted stock agreement at a value of $12.21 for the first 10,000 shares. All subsequent shares will
be valued upon the determination of future performance criteria. These restricted shares vest in accordance with tranches
over five performance periods, March 15, 2019, March 15, 2020, March 15, 2021, March 15, 2022, and March 15, 2023.
50,000 shares were granted September 25, 2018 as part of a time-based restricted stock agreement at a value of $12.21.
These restricted shares cliff vest over a five year period beginning December 15, 2018. As of December 31, 2018, 10,000 of
the time-based restricted shares have vested. 25,000 shares were granted October 1, 2018 as part of a performance-based
restricted stock agreement at a value of $12.05 for the first 5,000 shares. All subsequent shares will be valued upon the
determination of future performance criteria. These restricted shares vest in accordance with tranches over the same five
performance periods noted above.
28
FINANCIAL STATEMENTS
The following summarizes the restricted stock activity under the Plan:
NUMBER OF
SHARES
WEIGHTED
AVERAGE
EXERCISE PRICE
OUTSTANDING, DECEMBER 31, 2017
Grants
Vested
Expired
Forfeited
OUTSTANDING, DECEMBER 31, 2018
Grants
Vested
Expired
Forfeited
OUTSTANDING, DECEMBER 31, 2019
-
125,000
(10,000)
-
-
115,000
35,500
(25,000)
-
(5,000)
120,500
$ -
11.14
12.21
-
-
11.05
10.19
11.14
-
10.40
$ 10.81
For the years ended December 31, 2019 and 2018, the Bank recognized $447,790 and $504,692 in stock-based
compensation expense, respectively.
11. Operating Leases
The Company enters into leases in the normal course of business primarily for operations facilities, branch locations, and
mortgage operations facilities. The Company’s leases have remaining terms ranging from one to six years, some of which
include renewal options to extend the lease for up to fifteen years.
The Company includes lease extensions if, after considering relevant economic factors, it is reasonably certain the Company
will exercise the option. The Company has elected not to recognize leases with original lease terms of twelve months or less
(short-term leases) on the Company’s balance sheet.
Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and
short-term leases is recognized on a straight-line basis over the lease term. Right-of-use assets represent our right to use an
underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.
Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value
of lease payments over the lease term.
The Company uses its incremental borrowing rate at lease commencement to calculate the present value of lease payments
when the rate implicit in a lease is not known. The Company’s incremental borrowing rate is based on the FHLB amortizing
advance rate, adjusted for the lease term and other factors.
Right-of-use assets and lease liabilities by lease type, and the associated balance sheet classifications are as follows:
Right-of-use assets: Operating leases
Right of Use Asset, net
Lease liabilities: Operating leases
Lease Liability
2,928,546
2,981,132
BALANCE SHEET CLASSIFICATION
DECEMBER 31, 2019
Lease Expense
The components of total lease cost were as follows for the period ending:
Operating lease cost
DECEMBER 31, 2019
Right-of-use asset amortization
Lease accretion
823,278
116,394
FINANCIAL STATEMENTS
29
Lease Obligations
Future undiscounted lease payments for operating leases with initial terms of one year or more as of December 31, 2019 are
as follows:
2020
2021
2022
2023
2024
2025 AND THEREAFTER
Supplemental Lease Information
FINANCE LEASE
$ 776,141
687,428
707,630
690,683
193,766
164,264
Operating lease weighted average remaining lease term (years)
4.37 years
Operating lease weighted average discount rate
3.52%
DECEMBER 31, 2019
12. Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on
the measurement date. U.S. GAAP requires that valuation techniques maximize the use of observable inputs and minimize the
use of unobservable inputs. U.S. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three
broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three levels.
These levels are:
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: quoted 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).
LOANS HELD-FOR-SALE:
The Bank originates fixed rate residential loans on a servicing released basis in the secondary market. Loans closed
but not yet settled with an investor, are carried in the Bank’s loans held for sale portfolio. These loans are fixed rate
residential loans that have been originated in the Bank’s name and have closed. Virtually all of these loans have
commitments to be purchased by investors at a locked-in price with the investors on the same day that the loan was
30
FINANCIAL STATEMENTS
locked in with the Bank’s customers. Therefore, these loans present very little market risk for the Bank and are classified
as Level 2. The carrying amount of these loans approximates fair value.
DERIVATIVE ASSET – IRLCS:
The Bank recognizes IRLCs at fair value. Fair value of IRLCs is based on either (i) the price of the underlying loans obtained
from an investor for loans that will be delivered on a best efforts basis or (ii) the observable price for individuals loans
traded in the secondary market for loans that will be delivered on a mandatory basis. All of the Bank’s IRLCs are classified
as 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
2019
Available-for-sale securities
$ 49,854,912
$ -
$ 49,854,912
$ -
Loans held for sale
Interest Rate Lock Derivative
11,656,802
104,397
-
-
11,656,802
104,397
-
-
$ 61,616,111
$ -
$ 61,616,111
$ -
2018
Available-for-sale securities
$ 48,204,339
$ -
$ 48,204,339
$ -
Loans held for sale
Interest Rate Lock Derivative
4,415,520
65,694
-
-
4,415,520
65,694
-
-
$ 52,685,553
$ -
$ 52,685,553
$ -
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.
FINANCIAL STATEMENTS
31
The following table summarizes the Bank’s financial assets that were measured at fair value on a nonrecurring basis as of
December 31:
2019
Impaired loans
2018
Impaired loans
QUOTED PRICES IN
ACTIVE MARKETS FOR
IDENTICAL ASSETS
(LEVEL 1)
SIGNIFICANT OTHER
OBSERVABLE INPUTS
(LEVEL 2)
SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)
FAIR VALUE
$ -
$ -
$ -
$ -
$ -
$ -
$ -
$ -
The following table presents quantitative information about Level 3 fair value measurements for financial assets measured at
fair value on a non-recurring basis as of December 31:
FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2017
FAIR VALUE
VALUATION
TECHNIQUE(S)
UNOBSERVABLE
INPUTS
RANGE OF INPUTS
2019
Impaired loans
$ -
Appraisals
2018
Impaired loans
$ -
Appraisals
Discount to reflect current
market conditions and
estimated selling costs
10% - 15%
Discount to reflect current
market conditions and
estimated selling costs
10% - 15%
FASB ASC 825, Financial Instruments, requires disclosure about fair value of financial instruments, including those financial
assets and financial liabilities that are not required to be measured and reported at fair value on a recurring or nonrecurring
basis. ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Bank.
Additionally, in accordance with ASU 2016-01, which the Bank adopted on January 1, 2018 on a prospective basis, the Bank
uses the exit price notion, than the entry price notion, in calculating the fair values of financial instruments not measured at
fair value on a recurring basis.
32 FINANCIAL STATEMENTS
FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2019 USING
CARRYING
AMOUNT
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
Financial assets
Cash and due from banks
$ 927,322
$ 927,322
$ -
$ -
$ 927,322
Interest bearing deposits with banks
24,735,085
24,735,085
-
Securities available-for-sale
Loans held for sale
Loans receivable, net
49,854,912
11,656,802
388,820,181
-
-
-
Accrued interest receivable
1,278,037
1,278,037
49,854,912
11,656,802
-
-
Bank-owned life insurance
12,783,605
-
12,783,605
-
-
-
24,735,085
49,854,912
11,656,802
401,347,000
401,347,000
-
-
1,278,037
12,783,605
TOTAL FINANCIAL ASSETS
$490,055,944
$ 26,940,444
$ 74,295,319 $401,347,000
$502,582,763
Financial liabilities
Demand deposits
Time deposits
$195,389,610
$195,389,610
$ -
$ -
$195,389,610
Federal Home Loan Bank advances
35,857,143
199,821,006
-
-
200,761,000
35,736,392
Accrued interest payable
433,586
433,586
-
-
-
-
200,761,000
35,736,392
433,586
TOTAL FINANCIAL LIABILITIES $431,501,345
$195,823,196 $236,497,392
$ -
$432,320,588
FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2018 USING
CARRYING
AMOUNT
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
Financial assets
Cash and due from banks
$ 1,270,559
$ 1,270,559
$ -
$ -
$ 1,270,559
Interest bearing deposits with banks
14,376,684
14,376,684
-
Securities available-for-sale
Loans held for sale
Loans receivable, net
48,204,339
4,415,520
389,508,064
-
-
-
Accrued interest receivable
1,229,534
1,229,534
48,204,339
4,415,520
-
-
Bank-owned life insurance
12,401,317
-
12,401,317
-
-
-
14,376,684
48,204,339
4,415,520
390,930,000
390,930,000
-
-
1,229,534
12,401,317
TOTAL FINANCIAL ASSETS
$471,406,017
$ 16,876,777
$ 65,021,176 $390,930,000
$472,827,953
Financial liabilities
Demand deposits
Time deposits
$198,439,454
$198,439,454
$ -
$ -
$198,439,454
Federal Home Loan Bank advances
17,142,857
202,292,311
-
-
201,319,000
17,120,089
Accrued interest payable
218,537
218,537
-
-
-
-
201,319,000
17,120,089
218,537
TOTAL FINANCIAL LIABILITIES $418,093,159
$198,657,991 $218,439,089
$ -
$417,097,080
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 STATEMENTS
33
Financial instruments whose contract amount represents credit risk were approximately as follows:
Commitments to extend credit
Standby letters of credit
2019
2018
$ 78,240,000
$ 71,394,000
$ 1,896,000
$ 2,446,000
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.
14. Deferred Benefits
The Bank has a contributory 401(k) savings plan covering substantially all employees, which allows eligible employees to
contribute up to 100 percent of their compensation, subject to the limits established by the IRS for 401(k) contributions. During
the year ended December 31, 2019, the Bank implemented a non-discretionary 401(k) match. Expense related to this non-
discretionary match was $169,254 for the year ended December 31, 2019. In 2018, the Bank had a discretionary contribution
for which 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 $235,000 in 2018 for employee service rendered in 2017. There was no
discretionary match in 2019 for employee service rendered in 2018.
The Bank has deferred compensation plans for its directors, and its executives. 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.
15. Accumulated Other Comprehensive Loss
The following table presents the changes in accumulated other comprehensive loss, by category, net of tax, for the periods indicated:
Unrealized
Gains (Losses) on
Available-for-Sale
Securities
Unrealized Losses on
Securities Transferred
from Available-for-Sale
to Held-to Maturity
Accumulated Other
Comprehensive Loss)
BALANCE AT DECEMBER 31, 2017
$ (502,862)
$ (70,836)
$ (573,698)
Unrealized losses net of tax of $413,173
Reclassification for losses on sales net of tax of $248,033
Amortization of transferred securities, net of tax of $18,830
(1,554,314)
933,075
-
-
-
-
(1,554,314)
933,075
70,836
BALANCE AT DECEMBER 31, 2018
$ (1,124,101)
$ 70,836
$ (1,124,101)
Unrealized gains net of tax of $(313,232)
Reclassification for gains on sales net of tax of $22,202
1,178,347
(83,520)
-
-
1,178,347
(83,520)
BALANCE AT DECEMBER 31, 2019
$ (29,274)
$ -
$ (29,274)
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.
17. Related Party Transactions
For the years ended December 31, 2019 and 2018, the Bank began used a brokerage firm, at which one of the Bank’s
directors is a principal, through which it offers benefits such as payroll services and health and dental insurance for employees
of the Bank. The brokerage firm receives commission payments directly from the benefit providers and the Bank pays no fees
to the brokerage firm.
Also, in 2019 and 2018, the Bank obtained legal services from one law firm, for which one of its directors was a partner.
However, during the year ended December 31, 2018, the Bank’s director departed from this law firm.
34 FINANCIAL STATEMENTS
SHAREHOLDER & COMPANY INFORMATION
BOARD OF DIRECTORS
H. JASON GOLD
CHAIRMAN
JOHN T. ROHRBACK
VICE CHAIRMAN
CYNTHIA CARTER ATWATER
DIRECTOR
JOSEPH M. ENGLISH III
DIRECTOR
KEVIN J. KOOMAN
DIRECTOR
LAUREN FRIEND MCKELVEY
DIRECTOR
BRANDON C. PARK
DIRECTOR
MAURY PEIPERL
DIRECTOR
JOSEPH J. THOMAS
PRESIDENT & CEO
EXECUTIVE OFFICERS & SENIOR LEADERSHIP TEAM
JOSEPH J. THOMAS
PRESIDENT & CEO
SHAUN E. MURPHY
EXECUTIVE VICE PRESIDENT &
CHIEF OPERATING AND CREDIT OFFICER
RAJ MEHRA
EXECUTIVE VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
RICHARD A. HUTCHISON
EXECUTIVE VICE PRESIDENT &
CHIEF MORTGAGE OFFICER
KATHLEEN S. CROSON
EXECUTIVE VICE PRESIDENT &
CHIEF BANKING OFFICER
STEVE WITT
SENIOR VICE PRESIDENT & MARKET PRESIDENT
PRINCE WILLIAM COUNTY
STEPHEN H. MACNABB
SENIOR VICE PRESIDENT & MARKET PRESIDENT
FAIRFAX AND LOUDOUN COUNTIES
BRADLEY S. CROCKETT
SENIOR VICE PRESIDENT &
HEAD OF COMMERCIAL REAL ESTATE
VICTORIA S. LOUCKS
SENIOR VICE PRESIDENT &
HEAD OF TREASURY MANAGEMENT
SHAREHOLDER & COMPANY INFORMATION
35
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 5 Team
6201 Fifteenth Avenue
Brooklyn, NY 11219
718-921-8300
www.astfinancial.com
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Dixon Hughes Goodman LLP
Gaithersburg, Maryland
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
Thursday, April 30, 2020 – 4 pm
at Army Navy Country Club - Fairfax
3315 Old Lee Hwy, Fairfax, VA 22030
36 SHAREHOLDER & COMPANY INFORMATION
Putting IDEAS to Work
As a next-generation, community bank with differentiated
IDEAS, we use banker experience, industry sector knowledge,
and innovative technology to build lead relationships with
business owners, private real estate investors, and professionals
and help them realize their goals and achieve their dreams.
Our core values set us apart:
Innovation Discipline Experience Attitude Service
Give us the opportunity to put our IDEAS to work for you.
Experience Innovation. Bank With Freedom.
OUR
IDEAS
Business Banking
Personal Banking
Mortgage Banking
Call us at 703-242-5300 or visit us online at freedom.bank.
EMPOWER EMPLOYEES TO BENEFIT CLIENTS
Our IDEAS in Action
Our IDEAS in Action
When Quality Pipe Cleaning Co. wanted to acquire their headquarters
and purchase new equipment, our experienced team delivered.
Quality Pipe Cleaning (based in Sterling, VA) has been providing professional
sewer and storm drain cleaning to contractors, developers, homeowners
associations, local, state, and the federal government for over twenty years.
Tom Buchwald, Quality Pipe President & CEO, shares his positive experience
working with Freedom Bank:
“ The professional and experienced team at Freedom Bank completed
this complex transaction with ease and determination. The Bank and
its staff were incredibly easy to work with and the financing they
provided has helped improve my business exponentially. I highly
recommend Freedom Bank for all your financing and banking needs.”
Contact Freedom today and let us put our IDEAS to work for you.
Professional sewer & storm drain
cleaning company
$6,400,000
SBA 504 loan to acquire headquarters
and purchase equipment for future growth
July 2019
financing provided by
When Agile Data Sites needed financing to complete a strategic
acquisition, our experienced team closed the deal.
Based in Silver Spring, MD, Agile Data Sites provides 100% data availability
with highly-secure data center facilities, private cloud, and disaster recovery
services for clients across the Mid-Atlantic markets.
Jim Weller, Agile’s CEO, shares his very positive experience:
“ When we had a complicated acquisition where quick access to capital
was a critical ingredient to our success, I knew that I could count on
the team at Freedom Bank to advise me on how to put the financing
together, consummate a very quick closing on the new loans and
develop an integrated treasury system to help manage the new data
center. I had ready access to the CEO and a dedicated team of bankers
who are experienced and provided great service.”
Contact Freedom today and let us put our IDEAS to work for you.
IT services and equipment company
$1,700,000
Line of Credit, Term Loan, and a
Letter of Credit for the acquisition of a
data colocation center
July 2019
financing provided by
Business Banking
Personal Banking
Mortgage Banking
Business Banking
Personal Banking
Mortgage Banking
Call us at 703-242-5300 or visit us online at freedom.bank.
Call us at 703-242-5300 or visit us online at freedom.bank.
Our IDEAS in Action
Our IDEAS in Action
When Tech Systems, Inc. needed funding to fuel current and future
growth, our industry experts exceeded expectations.
Tech Systems, Inc. (TSI), a Veteran-Owned Small Business (VOSB) based in
Alexandria, VA, has been providing logistics, operation, and maintenance
of force sustainment for the United States Army, operating on 10 military
installations and Federal agency sites nationwide.
TSI’s President and CEO, Scotty R. Martin, shares his favorable experience and
complimentary feedback working with Freedom Bank:
“ We were completely surprised at how quickly Freedom Bank’s
GovCon team was able to structure and close financing that met our
growth needs. The bank’s industry knowledge and individualized
attention resulted in an innovative financing solution.”
Contact Freedom today and let us put our IDEAS to work for you.
Veteran-Owned Government Contractor
for the United States Army
$6,162,250
Line of Credit and related
financing to fuel future growth
September 2019
financing provided by
When AP Jordan Services, LLC wanted to acquire an insurance
services firm, our insurance industry experts sealed the deal.
AP Jordan Services LLC, a newly-formed entity based in Burke, VA, acquired a
local, longstanding Allstate® insurance agency. Freedom Bank financed the
acquisition while also providing a full range of deposit and treasury services.
AP Jordan Services Managing Member, Alex Jordan, shares his favorable
experience and complimentary feedback working with Freedom Bank:
“ We chose Freedom Bank because we wanted to work with a
bank that understood the insurance industry and had extensive
experience in acquisition financing for insurance agency owners.
The bank provided indispensable insight on how to craft the
financing package and facilitated a quick closing.”
Contact Freedom today and let us put our IDEAS to work for you.
Allstate® Insurance Agency
$864,000
Term Loan to Acquire Allstate® Agency
in Washington DC Area
September 2019
financing provided by
Business Banking
Personal Banking
Mortgage Banking
Business Banking
Personal Banking
Mortgage Banking
Call us at 703-242-5300 or visit us online at freedom.bank.
Call us at 703-242-5300 or visit us online at freedom.bank.
CHANTILLY
FAIRFAX
RESTON
VIENNA
4500 Daly Drive, Suite 240
Chantilly, VA 20151
10555 Main Street, Suite 100
Fairfax, VA 22030
11700 Plaza America Drive, Suite 110
Reston, VA 22190
502 Maple Avenue West
Vienna, VA 22180
571-395-4000
703-242-5300
703-663-2300
703-667-4170
MANASSAS
MORTGAGE DIVISION
Coming Soon
703-667-4166
4211 Pleasant Valley Road
Chantilly, VA 20151
703-766-6400
freedom.bank
OTCQX : FDVA
00DFDDF