2020 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
RETURN ON AVERAGE EQUITY
TANGIBLE BOOK VALUE PER SHARE
%
16
14
12
10
8
6
4
2
0
14.89%
13.43%
9.24%
6.34%
5.27%
4.66%
3.51%
3.36%
$10.09
$9.75
$9.33
$9.02
$8.76
$8.86
$8.48
$8.60
$
10.50
10.00
9.50
9.00
8.50
8.00
7.50
Mar.’19
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Sep.’19
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Mar.’20
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freedom.bank
00DFDDF
A LETTER TO OUR SHAREHOLDERS
March 1, 2021
Dear Shareholders:
On behalf of our directors and officers, we are pleased to present our 2020 Annual Report that highlights our
breakout financial performance this past year. In the face of the unprecedented national health and economic crisis
posed by the Coronavirus pandemic, Freedom Bank delivered exceptional outcomes for our clients and communities
and produced record financial results in 2020. Freedom Bank nearly tripled net income in 2020, earning $7.6 million or
$1.01 per diluted share, compared to net income of $2.7 million or $0.37 per diluted share in 2019.
The global health pandemic continues to hit companies in very uneven and unforgiving ways. We have seen the
devastating impact on businesses in the recreation, resort, retail and restaurant segments where COVID-19 has most
disrupted attendance and customer behavior. However, the new strategic plan adopted by the board in 2018 and
subsequent investments in people and technology enabled Freedom and our employees to thrive during the crisis and
provide hands-on assistance to our clients. Freedom Bank has served as an “economic first responder” by providing
advice and access to capital to entrepreneurs and small businesses at this critical time. Freedom’s forward leaning
approach towards our clients has provided us with meaningful loan and deposit growth during this difficult period.
The Bank thoughtfully supported our small business clients – including 250 new clients - with over 510 Paycheck
Protection Program (PPP) loans totaling $106 million. Additionally, we successfully participated in the Main Street
Lending Program (MSLP) - one of the only banks in the greater DC Region to do so - and closed $75 million in these
specialized loans. During the first quarter of 2021 we expect to close in excess of $50 million in new PPP2 loans
for clients. Building on our success in government guaranteed lending, we launched a new SBA Division comprised
of an experienced and dedicated 5-person team. We will focus on originating new SBA 7a and 504 loans to small
businesses on the East Coast, fully supported by Freedom’s rigorous underwriting standards.
A highlight of Freedom’s results in 2020 was the exceptional performance of our Mortgage Division. Our team
originated $471.8 million in mortgage loans for 1,288 clients, well in excess of any prior year performance. This
produced a total gain on sale revenues of $14 million while increasing pre-tax operating margins to 120 basis points.
We are fortunate to operate in the dynamic Washington DC region where the housing market has been incredibly
strong and driven high levels of purchase activity. Furthermore, historically low interest rates over the past year sparked
opportunities for consumers to refinance mortgages at lower rates. Our successful Mortgage Division has enabled us
to invest in new businesses to help diversify our sources of non-interest income as net interest margins grind lower.
As many banks retreated and closed branches, Freedom extended its footprint by opening a new sales office in
Manassas in July 2020 which was immediately accretive to earnings due to careful pre-opening planning, sales
success and an efficient-build strategy. We are delighted to have the physical presence in Prince William County
where there are so many small businesses and entrepreneurs aligned with our value proposition and enabling new
lead relationships and core deposits. Freedom plans to open another new location in Tysons mid-year and continues
evaluating expansion opportunities in Arlington and Loudoun counties as we focus on enhancing client accessibility to
the Bank, both physically and digitally.
Freedom Bank made robust investments in our people, culture and technology in 2020. We continue to add talent
and as of year-end over 50% of current employees have joined the Bank since we commenced the new strategy
in 2018. The Bank also took countless measures to ensure client and employee safety during the pandemic while
keeping all branches and offices open and staffed with multiple touch points for clients including drive-thrus and
lobby appointments. The Bank’s extensive outsourced digital infrastructure and technology platform enabled the staff
to work entirely remote during the year and our clients to have a greater array of digital banking solutions with the
personal service they have come to expect from Freedom bankers.
A LETTER TO OUR SHAREHOLDERS
01
A LETTER TO OUR SHAREHOLDERS (CONT.)
The Bank stepped up our efforts to address our country’s social struggles and formed a new Diversity and Inclusion
Committee to help define our internal objectives and seek ways to pursue opportunities to assist minorities in our
communities. We led the formation of the NOVA Technology Fund in partnership with the Community Business
Partnership to provide capital and advice to local entrepreneurs of color in the technology sector and related
service industries who are suffering substantial economic injury because of the Coronavirus outbreak. We made
other meaningful strides in our community by contributing over $15,000 to Veterans Moving Forward through our
Mortgage Division and won Leukemia & Lymphoma Society Light the Night Rookie of the Year through our successful
all-employee fundraising effort.
The results of our two-year effort to implement a new strategic plan were in full display this year. The Bank increased
full year 2020 net income by 172% to $7.6 million, originated 172% higher residential mortgage volume of $472
million, lifted total assets by 53% to $767 million, and grew tangible book value per share by 14.2% to $10.09 at
December 31, 2020. We also moved ahead of many local peer banks with our relative performance metrics of Return
on Assets of 1.12% and Return on Equity of 10.84% that were achieved while we were also building additional
allowance for loan losses by $1.5 million during fiscal year 2020. Through disciplined expense control, the Bank
improved its efficiency ratio to 69.7% for the year ending December 31, 2020 compared to 83.4% for the same
period in 2019.
The Bank’s success with PPP and our ability to attract new clients significantly grew total loans by 47.2% to $595.5
million at December 31, 2020 of which C&I loans represent 31.6%. Our non-interest DDA deposits were up 139.3%
to $193.9 million at year-end and now represent 35.2% of total deposits which enabled the Bank to significantly
reduce our funding costs to 0.63% for the fourth quarter, lower by 91 basis points compared to the same period in
2019. Our asset quality is strong with the ratio of non-performing assets to total assets at 0.41% on December 31,
2020 compared to 1.24% at the end of 2019. The Bank continues to be well capitalized with a Common Equity Tier
1 ratio of 13.21%, and a Total Capital ratio of 14.21%. These are among the strongest metrics of any bank in the
Washington DC MSA.
It is clear that the challenges related to the pandemic and the economy will continue throughout 2021, but our
company has demonstrated a resilience and ability to thrive in this environment. We have a strong team of colleagues
throughout the Bank who are capable of sustaining this level of financial performance. There is a renaissance of sorts
in community banking where small businesses have begun to focus more clearly on their banking relationship and
Freedom’s core values of IDEAS - Innovation, Discipline, Experience, Attitude and Service, have taken full bloom with
our clients. We are inspired by the resourcefulness and resilience of entrepreneurs in the DC Region that make our
economy so durable. We are also excited about the opportunity to continue building upon our company’s positive
momentum and unlocking the full potential of our franchise and building more value for shareholders over time.
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 balance sheets of The Freedom Bank of Virginia (the "Company") as of December
31, 2020 and 2019, the related statements of operations, comprehensive income, changes in stockholders’ equity
and cash flows for the years ended December 31, 2020 and 2019, 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, 2020 and 2019, 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 and in accordance with auditing standards
generally accepted in the United States of America. 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.
Tysons, VA
March 9, 2021
INDEPENDENT AUDITOR’S REPORT
03
FINANCIAL STATEMENTS
BALANCE SHEETS
December 31
2020 and 2019
ASSETS
Cash and due from banks
Interest-bearing deposits with banks
Securities available for sale
Securities held to maturity
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
2020
$ 1,792,660
2019
$ 927,322
25,543,295
24,735,085
97,188,125
49,854,912
16,132,367
-
3,607,800
3,752,750
45,047,711
11,656,802
550,426,851
392,941,874
(5,454,925)
(4,121,693)
544,971,926
388,820,181
1,298,409
2,868,868
1,154,078
1,480,535
1,278,037
857,698
17,035,214
12,783,605
3,258,817
7,145,687
2,928,546
1,317,201
$767,044,957
$500,392,674
NOTE: The Notes to 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
PPP liquidity facility advances
Accrued interest payable
Lease liability
Other liabilities
TOTAL LIABILITIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 5,000,000 shares authorized;
0 shares issued and outstanding, 2020 and 2019
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:
6,610,647 and 6,548,046 shares issued and outstanding
at December 31, 2020 and 2019, respectively (includes 100,002
and 120,500 unvested shares, respectively)
Non-Voting Common Stock:
673,000 shares issued and outstanding
at December 31, 2020 and 2019, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss), net
Retained earnings
Total Stockholders’ Equity
2020
2019
$ 192,987,984
$ 80,630,053
176,424,255
112,605,618
2,962,303
2,153,939
176,114,292
199,821,006
548,488,834
395,210,616
30,071,429
35,857,143
101,951,020
-
480,816
433,586
3,347,075
2,981,132
9,247,507
1,883,782
$ 693,586,681
$ 436,366,259
-
-
65,106
64,275
6,730
6,730
59,223,538
58,526,913
1,340,654
(29,274)
12,822,248
5,457,771
73,458,276
64,026,415
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$767,044,957
$500,392,674
NOTE: The Notes to Financial Statements are an integral part of these statements.
FINANCIAL STATEMENTS 05
STATEMENTS OF OPERATIONS
Years Ended December 31
2020 and 2019
INTEREST INCOME
Interest and fees on loans
Interest on investment securities
Interest on deposits with banks
Total Interest Income
INTEREST EXPENSE
Interest on deposits
Interest on borrowings
Total Interest Expense
Net Interest Income
PROVISION FOR LOAN LOSSES
Net Interest Income After
Provision for Loan Losses
NON-INTEREST INCOME
Gain on sale of mortgage loans
Swap fee income
Service charges and other income
Gain (loss) on sales of investment securities
Increase in cash surrender value of
Bank-owned life insurance
Bank-owned life insurance settlement income
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
2020
$ 22,133,659
2019
$ 21,113,850
2,288,660
109,557
1,369,822
391,377
24,531,876
22,875,049
4,262,364
800,940
5,063,304
6,207,144
545,141
6,752,285
19,468,572
16,122,764
1,492,000
194,500
17,976,572
15,928,264
12,296,296
4,083,717
657,712
1,805,228
46,703
494,403
144,810
-
836,401
105,722
382,288
-
15,445,152
5,408,128
16,233,421
1,194,320
735,374
196,442
1,298,943
1,012,601
278,602
725,466
1,952,049
711,503
11,347,119
1,142,845
891,384
118,226
1,106,208
885,836
336,282
629,989
843,191
858,874
24,338,721
18,159,954
9,083,003
3,176,438
NOTE: The Notes to Financial Statements are an integral part of these statements.
06 FINANCIAL STATEMENTS
INCOME TAX EXPENSE
NET INCOME
2020
1,718,526
2019
471,221
$ 7,364,477
$ 2,705,217
EARNINGS PER COMMON SHARE – BASIC
$ 1.02
$ 0.38
EARNINGS PER COMMON SHARE – DILUTED
$ 1.01
$ 0.37
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING – BASIC
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING – DILUTED
7,247,895
7,144,052
7,278,705
7,226,571
STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31
2020 and 2019
Net Income
Other Comprehensive Income:
Unrealized holding gains on securities available-for-sale arising
during the year, net of taxes of ($410,805) and ($313,232) in 2020
and 2019, respectively
Unrealized loss related to fair value adjustments on cash flow
derivatives arising during the year, net of taxes of $15,083 and $0
in 2020 and 2019, respectively and 2019, respectively
Gains on sales of securities available-for-sale, net of taxes of
$9,808 and $22,202 in 2020 and 2019, respectively
2020
2019
$ 7,364,477
$ 2,705,217
1,460,301
1,178,347
(53,478)
-
(36,895)
(83,520)
Total Other Comprehensive Income
1,359,928
1,094,827
COMPREHENSIVE INCOME
$ 8,734,405
$ 3,800,044
NOTE: The Notes to Financial Statements are an integral part of these statements.
FINANCIAL STATEMENTS 07
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31
2020 and 2019
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, 2018
6,981,602
69,816 $57,416,068
$ (1,124,101)
$ 2,752,554
$ 59,114,337
Net income
Other comprehensive income
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
Net income
Other comprehensive income
Stock options exercised
Restricted stock - vested
Stock-based compensation
- stock options
Stock-based compensation
- restricted stock
-
-
49,896
33,203
-
-
-
-
499
332
-
-
-
-
286,403
(332)
14,498
396,056
-
7,364,477
7,364,477
1,369,928
-
-
-
-
-
-
-
-
-
1,369,928
286,902
-
14,498
396,056
BALANCE, DEC. 31, 2020
7,183,645
71,836 $59,223,538
$ 1,340,654 $12,822,248
$ 73,458,276
NOTE: The Notes to Financial Statements are an integral part of these statements.
08 FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS
Years Ended December 31
2020 and 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash used by
operating activities:
Depreciation and amortization
Amortization of right-of-use asset
Provision for loan losses
Net amortization of available-for-sale securities
Gains 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
Loss on disposition of premises and equipment
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:
Accrued interest payable
Other liabilities
2020
$ 7,364,477
2019
$ 2,705,217
254,675
852,046
1,492,000
913,055
(46,703)
291,582
823,278
194,500
622,990
(105,722)
(12,296,296)
(4,083,717)
(469,549,472)
(176,560,647)
447,655,668
173,403,082
(816,374)
410,554
33,220
(682,296)
(494,403)
(1,590,831)
(840,799)
47,230
2,307,478
(770,692)
447,790
-
98,785
(382,288)
(48,503)
19,321
215,049
276,291
Net Cash Provided by Operating Activities
(24,986,771)
(2,853,684)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of bank-owned life insurance
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
Purchase of held-to-maturity securities
Maturities, calls and paydowns of securities held-to-maturity
Proceeds from settlement of BOLI policy
(Purchase) sale of restricted stock investments, net
Acquisition of bank premises and equipment
Net Cash Used in Investing Activities
(4,000,000)
(138,994,254)
(17,850,300)
-
6,828,950
(6,335,567)
(77,275,251)
(18,993,533)
26,101,185
4,798,905
(21,050,948)
4,918,581
242,794
144,950
(105,769)
(223,070,107)
9,209,349
9,002,200
-
-
-
(676,750)
(23,182)
(988,533)
NOTE: The Notes to Financial Statements are an integral part of these statements.
FINANCIAL STATEMENTS
09
STATEMENTS OF CASH FLOWS
Years Ended December 31
2020 and 2019
CASH FLOWS FROM FINANCING ACTIVITIES
2020
2019
(Decrease) increase in deposits, net
Advances from the Federal Home Loan Bank
Repayment of advances from the Federal Home Loan Bank
Advances from the Payment Protection Plan Liquidity Facility (“PPPLF”)
Repayment of advances from the PPPLF
Proceeds from stock options
$ 153,278,218
$ (5,521,149)
35,000,000
52,350,000
(40,785,714)
(33,635,714)
110,050,844
(8,099,824)
-
-
286,902
664,244
Net Cash Provided (Used) in Financing Activities
249,730,426
13,857,381
Net increase (decrease) in Cash and Cash Equivalents
1,673,548
10,015,164
Cash and Cash Equivalents, Beginning of Year
25,662,407
15,647,243
CASH AND CASH EQUIVALENTS, END OF YEAR
$ 27,335,955
$ 25,662,407
SUPPLEMENTAL NONCASH DISCLOSURES
Unrealized gain on securities available-for-sale, net
$ 1,824,403
$ 1,385,860
Loans transferred from held-for-sale to portfolio
$ 799,191
$ -
Right-of-use assets obtained in exchange for lease liabilities
$ 1,182,317
$ 3,751,824
Unrealized loss on cash flow derivative
$ (68,561)
$ -
Unfunded commitment on limited partnership investments
$ 4,987,687
$ -
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest
Cash paid during the year for income taxes
$ 5,016,075
$ 6,537,236
$ 1,825,000
$ 120,000
NOTE: The Notes to Financial Statements are an integral part of these statements.
10 FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
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
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, Reston and Manassas, Virginia,
and serves customers primarily in the Northern Virginia area. The Bank was in organization during the period January 27,
2000 through July 22, 2001, and opened for business on July 23, 2001.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles 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.
CASH AND CASH EQUIVALENTS
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 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.
FINANCIAL STATEMENTS
11
LOANS AND LOAN FEES
Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or pay-off, generally are
stated at the principal amount outstanding, less the allowance for loan losses and net deferred loan fees. Interest on loans is
generally computed using the simple interest method.
Loan origination and commitment fees, as well as certain direct origination costs, are deferred and amortized as a yield
adjustment over the lives of the related loans using the interest method. Amortization of deferred loan fees is discontinued
when a loan is placed on non-accrual status.
The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent, unless
the credit is well secured and in process of collection. Other personal loans are typically charged off no later than 180 days
past due. In all cases, loans are placed on non-accrual or charged off at an earlier date if collection of principal or interest is
considered doubtful.
All interest accrued but not collected for loans that are placed on non-accrual or charged off is reversed against interest
income. The interest on these loans is accounted for on the cash basis or cost-recovery method, until qualifying for return to
accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current
and future payments are reasonably assured.
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 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 amortizes software
over three years using the straight-line method.
12
FINANCIAL STATEMENTS
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.
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, 2020 and 2019.
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.
DERIVATIVES
At the inception of a derivative contract, the Bank designates the derivative as one of three types based on the Bank’s
intentions and belief as to the likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a
recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted
transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow
hedge”), or (3) an instrument with no hedging designation (“stand-alone derivative”). For a fair value hedge, the gain or loss
on the derivative, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized
in current earnings as fair value changes. For a cash flow hedge, the gain or loss on the derivative is reported in other
comprehensive income and is reclassified to earnings in the same periods during which the hedged transaction affects
earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings,
as non-interest income.
Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense,
based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported
in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as cash flows of the items
being hedged.
The Bank formally documents the relationship between derivatives and hedged items, as well as the risk-management
objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. The
documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to
specific firm commitments or forecasted transactions. The Bank also formally assesses, both at the hedge’s inception and on
an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values
or cash flows of the hedged items. The Bank discontinues hedge accounting when it determines that the derivative is no
longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates,
a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the
derivative as a hedge is no longer appropriate.
When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest
income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value
and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow
hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that
were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged
transactions will affect earnings.
The Bank is exposed to losses if a counterparty fails to make its payments under a contract in which the Bank is in the
net receiving position. The Bank anticipates that the counterparties will be able to fully satisfy their obligations under the
agreements. All the contracts to which the Bank is a party settle monthly or quarterly. In addition, the Bank obtains collateral
above certain thresholds of the fair value of its hedges for each counterparty based upon their credit standing and the Bank
has netting agreements with the dealers with which it does business.
FINANCIAL STATEMENTS
13
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 securities and qualifying derivative investments.
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 2017, 2018
and 2019 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.
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
2020
2019
7,247,895
7,144,052
30,810
82,519
7,278,705
7,226,571
Stock options for 22,734 and 8,401 shares of common stock and restricted stock awards of 24,667 and 10,000 were not
considered in computing diluted earnings per common share for 2020 and 2019, respectively, because they were antidilutive.
14
FINANCIAL STATEMENTS
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 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
Cash and cash equivalents include cash, deposits with other financial institutions with maturities fewer than 90 days, and
federal funds sold. Net cash flows are reported for customer loan and deposit transactions and interest bearing deposits in
other financial institutions. The Freedom Bank of Virginia periodically has bank deposits, including short-term investments, in
excess of Federally insured limits.
COMPREHENSIVE INCOME
Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes
unrealized gains and losses on securities available-for-sale and unrealized gains and losses on cash flow hedges which are
recognized as separate components of equity.
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.
REVENUE RECOGNITION
Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), provides
guidance for reporting revenue from the entity’s contracts to provide goods or services to customers. The guidance
requires recognition of revenue to depict the transfer of goods or services to customers in an amount that reflects the
consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance
obligations are satisfied.
The majority of revenue-generating transactions are excluded from the scope of ASC 606, including revenue generated from
financial instruments, such as securities and loans. Revenue-generating transactions that are within the scope of ASC 606,
classified within non-interest income, are described as follows:
• Deposit account service charges – represent service fees for monthly activity and maintenance on customer accounts.
Attributes can be transaction-based, item-based or time-based. Revenue is recognized when our performance obligation
is completed which is generally monthly for maintenance services or when a transaction is processed. Payment for such
performance obligations are generally received at the time the performance obligations are satisfied.
Other non-interest income primarily includes income on bank-owned life insurance contracts, letter of credit fees and gains
on sale of loans held for sale, none of which are within the scope of ASC 606.
RECENT ACCOUNTING PRONOUNCEMENTS
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, as amended
In June 2016, the Financial Accounting Standards Board (“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
statement of operations 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 Bank 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 Bank is currently in the process of
evaluating the impact of adoption of this guidance on the financial statements.
FINANCIAL STATEMENTS
15
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
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 Bank does not expect these amendments to have a material effect on its financial
statements.
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform
on Financial Reporting
On March 12, 2020, the FASB issued Updated 2020-04 to ease the potential burden in accounting for reference rate reform.
The amendments in Update 2020-04 are elective and apply to all entities that have contracts, hedging instruments, and other
transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The new
guidance provides the following options expedients that reduce costs and complexity of accounting for reference rate reform:
• Simplify accounting analysis for contract modifications.
• Allow hedging relationships to continue without de-designation if there are qualifying changes in the critical terms of an
existing hedging relationship due to reference rate reform.
• Allow a change in the systematic and rational method used to recognize in earnings the components excluded from the
assessment of hedge effectiveness.
• Allow a change in the designated benchmark interest rate to a different eligible benchmark interest rate in a fair value hedging
relationship
• Allow the shortcut method for a fair value hedging relationship to continue for the remainder of the hedging relationship.
• Simplify the assessment of hedge effectiveness and provide temporary optional expedients for cash flow hedging relationships
affected by reference rate reform.
• Allow a one-time election to sell or transfer debt securities classified as held-to-maturity that reference a rate affected by
reference rate reform and are classified as held-to-maturity before January 1, 2020.
The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of the ASU. An
entity may elect to apply the amendments prospectively through December 31, 2022.
The adoption of this standard is not expected to have material effect on the Bank's operating results or financial condition.
RECLASSIFICATION
Certain items in the 2019 financial statements have been reclassified to conform to the 2020 financial statement presentation.
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, 2020 and 2019 was $0 and $2,069,000, respectively. Additionally, the Bank is required to pledge cash
as collateral for its derivative positions with its counterparty. The required reserve at December 31, 2020 and 2019 was
$400,000 and $0, respectively.
16
FINANCIAL STATEMENTS
3. Investments
The amortized cost and fair values of securities as shown in the balance sheets of the Bank are as follows:
DEC. 31, 2020
Available-for-sale
Corporate notes
Mortgage-backed securities
Municipal securities - tax exempt
Municipal securities - taxable
SBA loan pools
Asset backed securities
Total Available-for-sale
Held-to-maturity
AMORTIZED
COST
GROSS
UNREALIZED
GAINS
GROSS
UNREALIZED
LOSSES
FAIR
VALUE
$ 19,763,774
$ 174,642
$ (60,059)
$ 19,878,357
43,853,112
9,714,912
13,255,621
3,582,406
5,230,952
817,934
321,625
298,644
26,128
342,627
(57,672)
44,613,374
-
10,036,537
(5,834)
13,548,431
(70,687)
-
3,537,847
5,573,579
$ 95,400,777
$1,981,600
$ (194,252)
$ 97,188,125
Municipal securities - tax exempt
$ 13,951,910
$ -
$ (8,784)
$ 13,943,126
Municipal securities - taxable
2,180,457
-
(185,928)
1,994,529
Total Held-to-maturity
$ 16,132,367
$ -
$ (194,712)
$ 15,937,655
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
The amortized cost and estimated fair value of debt securities at December 31, 2020, 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
HELD-TO-MATURITY
AMORTIZED
COST
FAIR
VALUE
AMORTIZED
COST
FAIR
VALUE
$ 2,002,642
$ 2,007,004
$ 7,830,000
$ 7,825,067
2,179,880
2,272,042
21,266,325
21,380,492
26,098,818
26,915,213
-
1,540,294
6,762,073
-
1,536,443
6,576,145
51,547,665
52,574,751
16,132,367
15,937,655
Mortgage-backed securities
43,853,112
44,613,374
-
-
$ 95,400,777
$97,188,125
$ 16,132,367
$ 15,937,655
FINANCIAL STATEMENTS
17
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, 2020 and 2019, the Bank had U.S. Government and agency securities and/or mortgage-backed securities
with carrying values of $0 and $1,527,243, 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, 2020, 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
$ 36,247
$ 8,435,868
$ 23,812
$ 976,188
Mortgage-backed securities
17,588
2,507,998
40,084
2,471,976
Municipal securities - taxable
5,834
3,204,330
-
-
SBA loan pools
TOTALS
-
-
70,687
2,103,941
$ 59,669
$ 14,148,196
$ 134,583
$ 5,552,105
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, 2020, seventeen debt securities with an unrealized loss for less than one year and sixteen debt securities
with an unrealized loss for greater than one year depreciated approximately 0.98 percent from the Bank’s amortized cost
basis. Sixteen of the securities are secured by Federal agency mortgage-backed securities or U.S. Treasury obligations and
direct obligations of U.S. Government agencies, ten of the securities are corporate bonds, four are private-label collateralized
mortgage obligations, and three are taxable municipal securities. 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.
The Bank received $4,798,905 in proceeds from the sale of available-for-sale securities during the year ended December 31,
2020. As a result, the Bank recognized $46,703 in gross gains and $0 in gross losses for the year ended December 31, 2020.
18
FINANCIAL STATEMENTS
Restricted stock 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
2020
2019
$ 1,764,700
$ 1,731,750
1,777,100
1,955,000
66,000
66,000
$ 3,607,800
$ 3,752,750
2020
2019
$ 188,140,971
$ 76,796,738
280,043,149
216,273,591
16,835,445
13,771,761
53,335,262
64,629,464
14,953,647
21,564,096
553,308,474
393,035,650
(2,881,623)
(93,776)
$ 550,426,851
$ 392,941,874
Commercial and industrial loans: The commercial lending portfolio consists primarily of commercial and industrial loans
for the financing of accounts receivable, property, plant and equipment. Commercial loans typically are made on the basis
of the borrower’s ability to repay the loan from the cash flow from its business and are secured by business assets, such
as commercial real estate, accounts receivable, equipment and inventory, the values of which may fluctuate over time and
generally cannot be appraised with as much precision as residential real estate. To manage these risks, the Bank’s policy is to
secure commercial loans originated with both the assets of the business, which are subject to the risks described above, and
other additional collateral and guarantees that may be available.
Real estate - commercial loans: Commercial real estate loans are primarily secured by various types of commercial real estate,
including office, retail, warehouse, industrial and other non-residential types of properties and are made to the owners and/or
occupiers of such property. The repayment of loans secured by income-producing properties is typically dependent upon the
successful operation of a business or real estate project, and thus may be subject to adverse conditions in the commercial real
estate market or in the general economy. The Bank generally requires personal guarantees or endorsements with respect to
these loans and loan-to-value ratios for commercial real estate loans, which generally do not exceed 80 percent.
Real estate – 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%.
FINANCIAL STATEMENTS
19
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 2020
Allowance for Loan Losses
COMMERCIAL
& INDUSTRIAL
REAL ESTATE -
COMMERCIAL
REAL ESTATE -
CONSTRUCTION
REAL ESTATE -
RESIDENTIAL
CONSUMER
TOTAL
Beginning balance
$ 805,618
$ 2,549,955
$ 163,258
$ 473,571
$ 129,291
$ 4,121,693
Charge-offs
Recoveries
Provision
(167,768)
8,000
-
-
-
-
-
1,000
-
-
(167,768)
9,000
205,008
1,353,483
56,329
(86,053)
(36,767)
1,492,000
Ending Balance
$ 850,858
$ 3,903,438
$ 219,587
$ 388,518
$ 92,524
$ 5,454,925
Individually evaluated for impairment
-
-
-
2,353
-
2,353
Collectively evaluated for impairment
850,858
3,903,438
219,587
386,165
92,524
5,452,572
Loans Receivable
Ending Balance
$188,140,971
$280,043,149
$ 16,835,445
$ 53,335,262 $ 14,953,647
$553,308,474
Individually evaluated for impairment $ 668,361
$ 3,858,376
$ -
$ 3,068,192 $ -
$ 7,594,929
Collectively evaluated for impairment
187,472,610
276,184,773
16,835,445
50,267,070
14,953,647
545,713,545
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
20
FINANCIAL STATEMENTS
An analysis of non-accrual and past due loans is as follows at December 31:
YEAR 2020
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
$ - $ - $ - $ - $188,140,971 $188,140,971
$ -
Real estate - commercial
Real estate - construction
Real estate - residential
Consumer
TOTALS
YEAR 2019
-
-
-
-
- 1,557,073
1,557,073
278,486,076
280,043,149
1,563,108
-
-
-
16,835,445
16,835,445
-
- 1,615,228
1,615,228
51,720,034
53,335,262
1,615,228
-
-
-
14,953,647
14,953,647
-
$ - $ - $ 3,172,301 $ 3,172,301 $550,136,173 $553,308,474
$ 3,178,336
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
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
An analysis of impaired loans based on loan segment is as follows at December 31:
YEAR 2020
With no related allowance recorded:
RECORDED
INVESTMENT
UNPAID
PRINCIPAL
BALANCE
RELATED
ALLOWANCE
FOR LOAN
LOSSES
AVERAGE
RECORDED
INVESTMENT
INTEREST
INCOME
RECOGNIZED
Commercial and industrial
$ 668,361
$ 668,361
$ -
$ 782,678
$ 45,808
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
3,858,376
3,859,931
-
-
1,452,964
1,452,964
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,899,716
125,644
-
-
1,478,917
89,567
-
-
-
-
-
-
-
-
1,615,228
1,738,228
2,353
1,642,728
55,000
-
-
-
-
-
-
-
-
782,678
3,899,716
-
45,808
125,644
-
Commercial and industrial
668,361
668,361
Real Estate - commercial
3,858,376
3,859,931
Real Estate - construction
-
-
Real Estate - residential
3,068,192
3,191,192
2,353
3,121,645
144,567
Consumer
-
-
-
-
-
$ 7,594,929
$ 7,719,484
$ 2,353
$ 7,804,039
$ 316,019
FINANCIAL STATEMENTS
21
RECORDED
INVESTMENT
UNPAID
PRINCIPAL
BALANCE
RELATED
ALLOWANCE
FOR LOAN
LOSSES
AVERAGE
RECORDED
INVESTMENT
INTEREST
INCOME
RECOGNIZED
$ 501,659
$ 510,000
$ -
$ 594,301
$ 32,512
YEAR 2019
With no related allowance recorded:
Commercial and industrial
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
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.
22
FINANCIAL STATEMENTS
An analysis of the credit quality indicators is as follows at December 31:
YEAR 2020
PASS
SPECIAL MENTION SUBSTANDARD DOUBTFUL
LOSS
TOTAL
Commercial and industrial $186,482,853
$ 989,757
$ 668,361 $ - $ -
$188,140,971
Real estate - commercial
269,613,896
6,570,877
3,858,376
Real estate - construction
16,835,445
-
-
49,011,982
14,953,647
798,411
3,524,869
-
-
-
-
-
-
-
-
-
-
280,043,149
16,835,445
53,335,262
14,953,647
$536,897,823
$ 8,359,045
$ 8,051,606 $ - $ -
$553,308,474
PASS
SPECIAL MENTION SUBSTANDARD DOUBTFUL
LOSS
TOTAL
Real estate - residential
Consumer
TOTALS
YEAR 2019
Commercial and industrial $ 74,002,420
$ 2,292,659 $ 501,659 $ - $ -
$ 76,796,738
Real estate - commercial
203,146,833
5,396,351
7,730,407
Real estate - construction
12,995,055
Real estate - residential
Consumer
TOTALS
60,222,768
21,564,096
776,706
496,597
-
-
3,910,099
-
-
-
-
-
-
-
-
-
216,273,591
13,771,761
64,629,464
21,564,096
$371,931,172
$ 8,962,313 $ 12,142,165 $ - $ -
$393,035,650
A loan modification is classified as a troubled debt restructuring (TDR) if both of the following exist: 1) the borrower is 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, 2020 and December 31, 2019, the Bank had $0 in recorded investment in troubled debt restructurings.
As such, there was no specific reserve allocated to these types of loan classifications at December 31, 2020 and December
31, 2019.
On March 27, 2020, the President signed H.R. 748, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) into
law. Among other provisions, the CARES Act authorized the Payment Protection Program (“PPP”). The PPP provides small
businesses with 500 or fewer employees with funds to pay up to eight weeks of payroll costs including benefits, interest on
mortgages, rent and utilities. Funds were made available in the form of fully guaranteed 7(a) loan administered by the Small
Business Administration (“SBA”), and made by approved SBA lenders. The loan amounts disbursed may be forgiven in whole
or in part by the SBA. The interest rate on the PPP loans is 1% and the term varies from two to five years (loan term of five
years for PPP loans originated pursuant to the Paycheck Protection Program Flexibility Act, signed into law on June 5, 2020).
Additionally, the SBA pays processing fees to the lenders, which vary depending upon the loan amount.
As an approved SBA lender, the Bank participated in the PPP loan program, processed and funded 512 loans with original
balances of $109.60 million in the second and third quarter. As of December 31, 2020, there were 474 PPP loans with an
outstanding balance of $101.21 million. These loans are included with commercial and industrial loans and have no allowance
for loan loss reserve recorded as they all carry a full faith and guarantee by the SBA.
During the year ended December 31, 2020, pursuant to the CARES Act and interagency guidance on loan modifications related
to COVID-19, the Bank granted loan payment deferrals of up to six months to ninety-six borrowers representing $89.35 million
of outstanding loan balances at the time of deferral. As of December 31, 2020, thirteen loans with a total outstanding loan
balance of $13.92 million are in deferral. All loans are scheduled to end their deferral terms in the first quarter of 2021.
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 $12,469,246 and $5,119,203 at December 31, 2020 and 2019, respectively. New
loans made to such related parties amounted to $11,506,583, and repayments amounted to $121,484 in 2020. Three loans
with an aggregate balance of $1,195,578 at December 31, 2019 were paid in full during the year ended December 31, 2020.
FINANCIAL STATEMENTS
23
Additionally, one of the related loans was sold via a loan participation whereby the participant holds 99% of the outstanding
principal balance. The balance that was sold was $2,839,478.
5. Bank Premises and Equipment
Bank premises and equipment include the following as of December 31:
Furniture and equipment
Leasehold improvements
Software
Total Cost
Less accumulated depreciation
2020
2019
$ 1,554,549
$ 1,809,589
1,463,207
1,455,267
180,115
218,014
3,197,871
3,482,870
(1,899,462)
(2,002,335)
NET BANK PREMISES AND EQUIPMENT
$ 1,298,409
$ 1,480,535
Depreciation and amortization of bank premises and equipment charged to expense amounted to $254,675 and $291,582 in
2020 and 2019, respectively.
6. Other Assets
Other Assets include the following as of December 31:
Investment in limited partnership - Small Business Investment Company
2020
$ 1,495,674
2019
$ -
Investment in limited partnership - Low Income Housing Investment Fund
3,492,013
Accounts receivable
Interest rate lock commitment
Prepaid expenses
Other assets
TOTAL
540,124
870,844
691,715
55,317
-
465,610
104,397
670,213
76,981
$ 7,145,687
$ 1,317,201
During the year ended December 31, 2020, the Bank committed $1.5 million to a Small Business Investment Company
(“SBIC”) with a sector focus in Communications Infrastructure and Technology (“CIT”). The investment is scheduled to phase
in via General Partner (“GP”) capital calls beginning in the fourth quarter of 2020 and phasing in entirely over an estimated
eighteen month period. The Bank’s financial investment in this SBIC limited partnership will not constitute a greater than 3%
interest in the general partnership; therefore, the investment is recorded at cost, less any impairment, plus or minus changes
resulting from observable price changes in orderly transactions for the identical or similar investments of the same issuer. The
Bank has recognized a liability, in other liabilities, representing the unfunded portion of the partnership commitment. As of
December 31, 2020, the Bank had received and paid capital calls for $329,272.
During the year ended December 31, 2020, the Bank committed $3.5 million to a Low Income Housing Tax Credit (“LIHTC”)
investment. The partnership was formed to pursue and make investments in multifamily rental apartment complexes rented,
in whole or in part, to qualified low- and moderate-income tenants. The Bank’s financial investment in this SBIC limited
partnership will not constitute a greater than 3% interest in the general partnership; therefore, the investment is recorded
at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the
identical or similar investments of the same issuer. The Bank has recognized a liability, in other liabilities, representing the
unfunded portion of the partnership commitment. As of December 31, 2020, the Bank had received and paid capital calls for
$309,030.
24 FINANCIAL STATEMENTS
7. Deposits
The following are time deposits maturing in years ending December 31:
2021
2022
2023
2024
2025 AND THEREAFTER
TOTAL
$ 134,075,475
35,184,516
4,010,298
1,976,248
867,755
$ 176,114,292
Time deposits in denominations that meet or exceed the FDIC minimum limit of $250,000 or more totaled $83,000,897 and
$84,141,775 at December 31, 2020 and 2019, respectively.
The Bank held related party deposits of $11,946,073 and $2,516,144 at December 31, 2020 and 2019, respectively.
8. Borrowings and Advances
The Bank's borrowings from the Federal Home Loan Bank of Atlanta (FHLB) were $30.1 million and $35.9 million at December
31, 2020 and 2019, respectively. At December 31, 2020 and 2019, the weighted average rates on FHLB advances were 1.59%
and 1.69%, 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 $104.2 million and $99.3 million.
FHLB advances are subject to prepayment penalties. During the year ended December 31, 2020 and 2019, the Bank 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 $10.0 million in callable FHLB advances at December 31, 2020 and 2019 with a weighted average
rate of 0.95% and 1.04%, respectively.
Advances from the FHLB are summarized by year of maturity and weighted average interest rate at December 31, 2020:
2021
2022
2023
2024
2025 AND THEREAFTER
TOTAL
AMOUNT
WEIGHTED
AVERAGE RATE
$ 15,750,000
4,321,429
-
-
1.85%
2.15%
n/a
n/a
10,000,000
0.95%
$ 30,071,429
FINANCIAL STATEMENTS 25
9. Other Liabilities
Other liabilities include the following as of December 31:
Unfunded commitment in limited partnership - Small Business Investment
Company
Unfunded commitment in limited partnership - Low Income Housing
Investment Fund
Accrued expenses
Automated clearing house transactions pending
Accounts payable
Other liabilities
TOTAL
10. 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
Unrealized gains on securities
Right-of-use asset
Interest rate lock
2020
2019
$ 1,170,728
3,190,970
$ -
-
2,727,102
1,266,061
1,555,775
431,169
425,438
177,494
90,440
96,112
$ 9,247,507
$ 1,883,782
2020
2019
$ 1,184,064
$ 804,265
187,081
394,984
32,933
-
79,541
-
19,693
115,360
16,032
7,782
75,440
45,760
702,886
626,038
15,083
32,129
-
14,427
2,628,701
1,724,797
208,650
393,217
683,728
189,028
1,474,623
206,181
-
614,995
45,923
867,099
NET DEFERRED TAX ASSET
$ 1,154,078
$ 857,698
26
FINANCIAL STATEMENTS
Income tax expense (benefit) was as follows:
Current tax expense
Federal
State
Deferred tax expense (benefit)
Federal
State
2020
2019
$ 2,320,377
$ 372,436
80,445
-
(612,352)
(69,944)
98,785
-
$ 1,718,526
$ 471,221
Effective tax rates differ from the federal statutory rate of 21% applied to income before income tax expense due to the
following:
Federal statutory rate times financial statement income
Effect of:
State income taxes, net of federal benefit
Tax-exempt interest income, net of disallowance
Earnings from bank-owned life insurance
Net operating loss carryback benefit
Unrecognized tax benefits, net
Stock compensation
Low income housing investment benefit
Other
2020
$ 1,907,431
2019
$ 667,052
8,296
(71,192)
(134,235)
(87,701)
62,397
10,798
(1,956)
24,688
-
(54,213)
(80,280)
-
-
(2,455)
-
(58,883)
$ 1,718,526
$ 471,221
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020. Under the CARES
Act, net operating losses arising in tax years beginning after December 31, 2017, and before January 1, 2021 can be carried
back five tax years preceding the tax year which the loss originated. In the 2018 tax year, the Bank generated a net operating
loss which it carried back following the passage of the CARES Act. As a result, the Bank recorded a tax benefit of $87,701
due to federal statutory rates being higher in the carry back year than the 2018 tax year.
A reconciliation of the beginning and ending amount of unrecognized tax benefits are as follows:
Balance, beginning of year
Increases related to prior tax positions
Decreases related ot prior tax positions
Increases related to current tax positions
Settlements
Lapse of statute
Balance, end of year
2020
$ -
69,605
-
-
-
-
2019
$ -
-
-
-
-
-
$ 69,605
$ -
FINANCIAL STATEMENTS
27
The Bank's policy is to recognize interest and penalties related to unrecognized tax benefits in income tax expense. The
accrual for interest and penalties was not material for all years presented.
The Bank is subject to income tax by federal and state taxing authorities in which the Bank does business in. The Bank is
subject to examination by the Internal Revenue Services for the tax periods ending after December 31, 2016. The Bank is
subject to examination by state taxing authorities for the tax year beginning January 1, 2021, it's initial year of filing in income
tax jurisdictions.
11. 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.
The Bank is required to maintain (i) a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% "capital
conservation buffer" (which is added to the 4.5% CET1 ratio, effectively resulting in a minimum ratio of CET1 to risk-
weighted assets of at least 7.0%); (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the
capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively resulting in a minimum Tier 1 capital
ratio of 8.5%); (iii) a minimum ratio of total capital (that is, Tier 1 plus Tier 2 capital) to risk-weighted assets of at least 8.0%,
plus the capital conservation buffer (which is added to the 8.0% total capital ratio, effectively resulting in a minimum total
capital ratio of 10.5%); and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to adjusted average
quarterly assets.
As of December 31, 2020, 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.
28
FINANCIAL STATEMENTS
The Bank’s actual capital amounts and ratios as of December 31, 2020 and 2019 are as follows:
ACTUAL
FOR CAPITAL
ADEQUACY PURPOSES
MINIMUM TO BE WELL
CAPITALIZED UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
AMOUNT
RATIO
AMOUNT
RATIO
AMOUNT
RATIO
DEC. 31, 2020
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, 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)
12. Derivatives
$77,572,547
14.21%
$57,310,313
10.50%
$54,581,251
10.00%
$72,117,624
13.21%
$46,394,063
8.50%
$43,665,000
8.00%
$72,117,624
13.21%
$38,206,875
7.00%
$35,477,813
6.50%
$72,117,624
11.20%
$25,758,677
4.00%
$32,198,346
5.00%
$68,177,383
16.24%
$44,085,700
10.50%
$41,986,381
10.00%
$64,055,691
15.26%
$35,688,423
8.50%
$33,589,104
8.00%
$64,055,691
15.26%
$29,390,466
7.00%
$27,291,147
6.50%
$64,055,691
12.80%
$20,013,080
4.00%
$25,016,350
5.00%
The Bank uses interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate
risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by parties. The amount
is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.
Cash Flow Hedges: Interest rate swaps with notional amounts totaling $24 million and $0 as of December 31, 2020 and 2019,
were designated as cash flow hedges on certain brokered deposits and were determined to be effective during all periods
presented. The Bank expects the hedges to remain effective during the remaining terms of the swaps.
Derivatives Not Designated As Hedges: The Bank also enters into interest rates swaps with its loan customers. The notional
amount of interest rate swaps with its loan customers as of December 31, 2020 and 2019 were $26,625,624 and $0,
respectively. The Bank enters into corresponding offsetting derivatives with third parties. While these derivatives represent
economic hedges, they do not qualify as hedges for accounting purposes. The fair value of these derivatives were deemed
immaterial at December 31, 2020.
FINANCIAL STATEMENTS
29
LINE ITEM IN THE
BALANCE SHEET IN WHICH THE
HEDGED ITEM IS INCLUDED
CARRYING AMOUNT
OF THE HEDGED LIABILITIES
CUMULATIVE AMOUNT OF
FAIR VALUE HEDGING ADJUSTMENT
INCLUDED IN THE CARRYING
AMOUNT OF THE HEDGED
LIABILITY
Brokered Deposits
$ 14,000,000
$ -
$ -
$ -
Brokered Time Deposits
$ 10,000,000
$ -
$ -
$ -
2020
2019
2020
2019
The Bank presents the net derivative position on the balance sheet. The following table reflects the derivatives recorded on
the balance sheet as of December 31:
2020
2019
NOTIONAL
AMOUNT
FAIR VALUE
NOTIONAL
AMOUNT
FAIR VALUE
Included in other liabilities
Derivatives designated as hedges:
Interest rate swaps related to brokered deposits
$ 14,000,000
$ 19,082
$ -
$ -
Interest rate swaps related to brokered time deposits
10,000,000
(87,643)
-
-
TOTAL INCLUDED IN OTHER LIABILITIES
$ 24,000,000
$ (68,561)
$ -
$ -
The effect of cash flow hedge accounting on accumulated other comprehensive income for the years ended December 31 are
as follows, net of taxes:
2020
AMOUNT OF LOSS
RECOGNIZED IN OCI ON
DERIVATIVE
LOCATION OF GAIN
(LOSS) RECLASSIFIED
FROM OCI INTO
INCOME
AMOUNT OF GAIN
(LOSS) RECLASSIFIED
FROM OCI INTO
INCOME
Interest rate contracts
$ 53,478
N/A
$ -
For the years ended December 31, 2020 and 2019 there was no gain or loss recognized in income on cash flow hedging
relationships.
13. 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 authorized and granted options under the Plan are as follows at December 31, 2020:
2007 Plan
AUTHORIZED
GRANTED
1,075,280
808,278
VESTED
609,345
30
FINANCIAL STATEMENTS
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, 2020, there was approximately $615 in unrecognized compensation
expense related to non-vested stock options that are expected to be recognized over a weighted average period of 0.07
years. At December 31, 2019, there was approximately $15,113 in unrecognized compensation expense related to non-vested
share-based compensation.
The intrinsic value of options exercised during 2020 and 2019 was $167,152 and $215,043 respectively. The weighted average
remaining contractual life of options outstanding was 2.60 and 4.16 years for the years ended December 31, 2020 and 2019,
respectively. As of December 31, 2020 all outstanding options are fully vested. The intrinsic value of these fully vested options
at December 31, 2020 was $217,221.
The following summarizes the option activity under the Plan:
OUTSTANDING, DECEMBER 31, 2018
330,456
$ 6.67
NUMBER OF
SHARES
WEIGHTED
AVERAGE
EXERCISE PRICE
Grants
Exercised
Expired
Forfeited
OUTSTANDING, DECEMBER 31, 2019
Grants
Exercised
Expired
Forfeited
-
(93,944)
(59,228)
(10,250)
167,034
-
(49,896)
(17,682)
(525)
-
7.07
6.03
9.98
6.47
-
5.75
5.59
10.05
OUTSTANDING, DECEMBER 31, 2020
98,931
$ 6.97
There were no stock options granted during the years ended December 31, 2020 and 2019. The weighted average remaining
contractual life of options outstanding as of December 31, 2020 is 2.60 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, 2020, 18,000 voting common shares of restricted stock were granted to Bank
employees. 8,000 shares were granted as part of a time-based restricted stock agreement with a fair value of $10.05 at the
date of grant. These restricted shares cliff vest over a three year period based on their date of grant. 10,000 shares were
granted as part of a performance-based restricted stock agreement with a fair value of $10.05 at the date of grant. These
restricted stock shares vest over a five year (i.e., five annual performance tranches) period beginning March 15, 2021.
At December 31, 2020, there was $649,567 in unrecognized compensation expense related to non-vested restricted stock
awards that are expected to be recognized over a weighted average period of 2.16 years. At December 31, 2019, there was
$916,960 in unrecognized compensation expense related to non-vested restricted stock awards.
FINANCIAL STATEMENTS
31
The following summarizes the restricted stock activity under the Plan:
OUTSTANDING, DECEMBER 31, 2018
Grants
Vested
Expired
Forfeited
OUTSTANDING, DECEMBER 31, 2019
Grants
Vested
Expired
Forfeited
OUTSTANDING, DECEMBER 31, 2020
NUMBER OF
SHARES
115,000
35,500
(25,000)
-
(5,000)
120,500
18,000
(33,498)
-
(5,000)
100,002
WEIGHTED
AVERAGE
EXERCISE PRICE
$ 11.05
10.19
11.14
-
10.40
10.81
10.05
10.90
-
10.00
$ 10.68
For the years ended December 31, 2020 and 2019, the Bank recognized $410,554 and $447,790 in stock-based compensation
expense, respectively.
14. Operating Leases
The Bank enters into leases in the normal course of business primarily for operations facilities, branch locations, and mortgage
operations facilities. The Bank's leases have remaining terms ranging from twenty-six months to sixty-one months, some of
which include renewal options to extend the lease for up to ten years.
The Bank includes lease extensions if, after considering relevant economic factors, it is reasonably certain the Bank will
exercise the option. The Bank has elected not to recognize leases with original lease terms of twelve months or less (short-
term leases) on the Bank’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 Bank 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 Bank’s incremental borrowing rate is based on the FHLB amortizing advance rate,
adjusted for the lease term and other factors.
The Bank entered into two renewal agreements on its Vienna branch location and its Mortgage operations location
during the current year. These renewal options extend the duration of the lease agreements for five years and three years,
respectively. For lease accounting purposes, the Bank utilized a discount rate based on FHLB advance funding rates of 0.66%
and 0.63%, respectively.
Additionally, the Bank opened a new branch in Manassas, Virginia on August 24, 2020. The lease contract for this location is
a five-year term with one five-year renewal option. For lease accounting purposes, the Bank utilized a discount rate based on
an FHLB advance funding rate of 1.17%.
Right-of-use assets and lease liabilities by lease type, and the associated balance sheet classifications are as follows:
BALANCE SHEET CLASSIFICATION
DECEMBER 31, 2020
Right-of-use assets: Operating leases
Right-of-use asset
Lease liabilities: Operating leases
Lease liability
$ 3,258,817
$ 3,347,075
32 FINANCIAL STATEMENTS
Lease Expense
The components of total lease cost were as follows for the period ending:
Operating lease cost
DECEMBER 31, 2020
Right-of-use asset amortization
Lease accretion
$ 852,046
89,173
Lease Obligations
Future undiscounted lease payments for operating leases with initial terms of one year or more as of December 31, 2020 are
as follows:
2021
2022
2023
2024
2025 AND THEREAFTER
OPERATING LEASE
$ 949,312
972,517
801,544
275,372
503,721
Supplemental Lease Information
Operating lease weighted average remaining lease term (years)
Operating lease weighted average discount rate
DECEMBER 31, 2020
4.34 years
2.38%
15. 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 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access
as of the measurement date.
Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market
data.
Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market
participants would use in pricing an asset or liability.
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.
FINANCIAL STATEMENTS
33
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:
INVESTMENT SECURITIES:
The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities
where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2),
using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not
actively traded, values debt securities without relying exclusively on quoted prices for the specific securities but rather by
relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted
prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or
other market indicators (Level 3).
INTEREST RATE LOCK COMMITMENT (IRLC):
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 3.
DERIVATIVES:
The fair values of derivatives are based on valuation models using observable market data as of the measurement date
(Level 2). Our derivatives are traded in an over-the-counter market where quoted market prices are not always available.
Therefore, the fair value of derivatives are determined using quantitative models that utilize multiple market inputs. The
inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous
yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are
actively quoted and can be validated through external sources, including brokers, market transactions and third-party
pricing sources.
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
2020
Available-for-sale securities
$ 97,188,125
$ -
$ 94,849,021
$ 2,339,104
Interest rate lock commitment
Cash flow derivatives
870,844
(68,561)
-
-
-
870,844
(68,561)
-
$ 97,990,408
$ -
$ 94,780,460
$19,147,603
2019
Available-for-sale securities
$ 49,854,912
$ -
$ 49,854,912
$ -
Interest rate lock commitment
104,397
-
-
104,397
$ 49,959,309
$ -
$ 49,854,912
$ 104,397
34 FINANCIAL STATEMENTS
The following table represents recurring level III assets:
BALANCE AT DECEMBER 31, 2018
Realized and unrealized gains included in earnings
Purchase of securities
Sales, maturities, calls, and paydowns of securities
Unrealized gain/(loss) included in other comprehensive income
Unrealized gain/(loss) not included in other comprehensive income
BALANCE AT DECEMBER 31, 2019
Realized and unrealized gains included in earnings
Purchase of securities
Sales, maturities, calls, and paydowns of securities
Transfer to level III assets
Unrealized gain/(loss) included in other comprehensive income
Unrealized gain/(loss) not included in other comprehensive income
AVAILABLE-FOR-
SALE SECURITIES
INTEREST RATE LOCK
COMMITMENTS
$ -
$ 65,694
-
-
-
-
-
38,703
-
-
-
-
$ -
$ 104,397
-
766,447
1,089,563
(459)
1,250,000
-
-
-
-
-
-
-
BALANCE AT DECEMBER 31, 2020
$ 2,339,104
$ 870,844
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:
The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent
real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including
comparable sales and the income approach. Adjustments are routinely made in the appraisal process by independent
appraisers to adjust for differences between the comparable sales and income data available for similar loans and collateral
underlying such loans. For this reason, the fair value classification of these loans is Level 3. Non-real estate collateral
may be valued using an appraisal, net book value per the borrower's financial statements, or aging reports, adjusted
or discounted based on management's expertise and knowledge, changes in market conditions from the time of the
valuation, and management's expertise and knowledge of the client and client's business, resulting in a Level 3 fair value
classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with
the allowance policy.
The following table summarizes the Bank’s financial assets that were measured at fair value on a nonrecurring basis as of
December 31:
2020
Impaired loans
2019
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
$ 1,612,875
$ -
$ -
$ 1,612,875
$ -
$ -
$ -
$ -
FINANCIAL STATEMENTS
35
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
FAIR VALUE
VALUATION
TECHNIQUE(S)
UNOBSERVABLE
INPUTS
RANGE OF INPUTS
2020
Impaired loans
$ 1,612,875
Appraisals
2019
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, rather than the entry price notion, in calculating the fair values of financial instruments not
measured at fair value on a recurring basis.
FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2020 USING
CARRYING
AMOUNT
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
Financial assets
Cash and due from banks
$ 1,792,660
$ 1,792,660
$ -
$ -
$ 1,792,660
Interest bearing deposits with banks
25,543,295
25,543,295
-
-
25,543,295
Securities available-for-sale
Securities held-to-maturity
Loans held for sale
Loans receivable, net
97,188,125
16,132,367
45,047,711
544,971,926
-
-
-
-
Accrued interest receivable
2,868,868
2,868,868
Bank-owned life insurance
Interest rate lock commitment
17,035,214
870,844
-
-
94,849,021
2,339,104
97,188,125
-
15,937,655
15,937,655
45,047,711
-
45,047,711
-
-
17,035,214
553,812,000
553,812,000
-
-
2,868,868
17,035,214
-
870,844
870,844
TOTAL FINANCIAL ASSETS
$751,451,010
$ 30,204,823 $156,931,946 $572,959,603
$760,096,372
Financial liabilities
Demand deposits
Time deposits
$372,374,542
$372,374,542
$ -
$ -
$372,374,542
Federal Home Loan Bank advances
30,071,429
PPP liquidity facility advances
101,951,020
176,114,292
-
-
-
178,064,000
29,482,881
101,951,020
Accrued interest payable
Cash flow derivatives
480,816
68,561
480,816
-
-
68,561
-
-
-
-
-
178,064,000
29,482,881
101,951,020
480,816
68,561
TOTAL FINANCIAL LIABILITIES $681,060,660
$372,855,358 $309,566,462
$ -
$682,421,820
36 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
Bank-owned life insurance
Interest rate lock commitment
12,783,605
104,397
-
-
49,854,912
11,656,802
-
-
12,783,605
-
-
-
24,735,085
49,854,912
11,656,802
389,690,000
389,690,000
-
-
1,278,037
12,783,605
-
104,397
104,397
TOTAL FINANCIAL ASSETS
$490,160,341
$ 26,940,444
$ 74,295,319 $389,794,397
$491,030,160
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
16. Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Bank has outstanding commitments and contingent liabilities, such as commitments
to extend credit and standby letters of credit, which are not included in the accompanying financial statements. The Bank’s
exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to
extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Bank
uses the same credit policies in making such commitments as it does for instruments that are included in the balance sheets.
Financial instruments whose contract amount represents credit risk were approximately as follows:
Commitments to extend credit
Standby letters of credit
2020
2019
$ 154,077,000
$ 78,240,000
$ 1,394,000
$ 1,896,000
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.
FINANCIAL STATEMENTS
37
17. Deferred Benefits
The Bank has a traditional 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, 2020, the Bank began offering a post-tax Roth deferral plan to substantially all employees.
Both deferral options receive a non-discretionary match subject to limitations based on annual salary. Expenses related to this
non-discretionary match were $239,162 and $169,254 for the years ended December 31, 2020 and 2019, respectively.
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.
18. 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 CASH FLOW
DERIVATIVES
ACCUMULATED
OTHER COMPREHEN-
SIVE (LOSS)
BALANCE AT DECEMBER 31, 2018
$ (1,124,101)
$ -
$ (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)
Unrealized gains net of tax of $(410,805)
Reclassification for gains on sales net of tax of $9,808
1,460,301
(36,895)
-
-
Unrealized loss on cash flow derivative, net of tax of $15,083
-
(53,478)
1,460,301
(36,895)
(53,478)
BALANCE AT DECEMBER 31, 2020
$ 1,394,132
$ (53,478)
$ 1,340,654
19. Legal Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business are recorded as liabilities when
the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe
there now are such matters that will have a material effect on the financial statements.
20. Related Party Transactions
For the years ended December 31, 2020 and 2019, the Bank used a brokerage firm, at which one of the Bank’s directors is
a principal. This brokerage firm 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. Bank-paid fees amounted to
$400 and $0 for the years ended December 31, 2020 and 2019.
For the years ended December 31, 2020 and 2019, the Bank obtained legal services from one law firm, for which one of its
directors was a former partner. The aforementioned director departed this legal firm in May of 2019.
21. Subsequent Events
The date to which events occurring after December 31, 2020, the date of the most recent balance sheet, have been evaluated
for possible adjustments to the financial statements or disclosure is March 9, 2020, which is the date on which the financial
statements were available to be issued.
38 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
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 &
MANAGING DIRECTOR, COMMERCIAL BANKING
VICTORIA S. LOUCKS
SENIOR VICE PRESIDENT &
HEAD OF TREASURY MANAGEMENT
DARREN TULLY
SENIOR VICE PRESIDENT &
MARKET PRESIDENT, FAIRFAX
KEVIN FERRYMAN
SENIOR VICE PRESIDENT &
HEAD OF SBA DIVISION
SHAREHOLDER & COMPANY INFORMATION
39
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 virtual this year and will be held on
Thursday, April 29, 2021 at 4 pm
Shareholders may participate in the meeting by logging into Zoom using the following
Meeting ID: 898 3874 5165 and Passcode: 149986. Shareholders will have the ability to ask questions
during the Annual Meeting via the "chat" function on the Zoom platform.
40 SHAREHOLDER & COMPANY INFORMATION
Helping Businesses Thrive
through industry expertise and customized solutions
As a local, full-service community bank, Freedom Bank’s most important mission is to help
our clients during times of need. When businesses needed capital during this Covid-19
crisis to fund their growth and secure their future, we’ve been there for them.
Here are some of the dynamic organizations we assisted recently:
Specializing in drywall construction and new
construction painting
Specialist in the floor underlayment and leveling market
$9,000,000
Accounts Receivable Lines of Credit, Owner Occupied
Commercial Mortgage, Equipment Financing, and
Paycheck Protection Program (PPP) loans to facilitate
the companies’ growth and development.
October 2020
financing provided by
Fully-Integrated, Full-Scale Land
Development, Design/Build, and Property
Management Firm
$7,600,000
Commercial Construction Loan for a
Class-A Warehouse in Ashland, VA
September 2020
financing provided by
Term Loan to Acquire Allstate Agency
in Lansdowne, VA
$458,100
August 2020
financing provided by
Real Estate Investment, Development,
and Management Company
$2,350,000
Commercial Construction Loan for the
Renovation of an Office Building in
Old Town Alexandria
July 2020
financing provided by
IT Engineering and Professional Services
Government Contractor
International Mechanical Services
Company and Leading HVAC Contractor
$5,424,408
Commercial Real Estate Mortgage
for the purchase of a new office
building in Columbia, MD and a
Floating-to-Fixed Interest Rate Swap
May 2020
financing provided by
$7,000,000
AR Line of Credit and Second Line of
Credit for Capital Expenditures
March 2020
financing provided by
PROUD LEAD SPONSOR OF
The Washington Business Journal’s Small Biz Backer Program
and the Small Business Resource Guide
Putting our IDEAS to work when you need us most.
Business Banking
Personal Banking
Mortgage Banking
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
703-667-4167
703-663-2300
703-667-4170
MANASSAS
MORTGAGE DIVISION
SBA DIVISION
10611 BaIls Ford Road, Suite 110
Manassas, VA 20109
4211 Pleasant Valley Road
Chantilly, VA 20151
500 Mamaroneck Avenue, Suite 401B
Harrison, NY 10528
703-349-2210
703-766-6400
914-370-2061
TYSONS
Coming Soon
freedom.bank
OTCQX : FDVA
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