2 0 2 3 A N N U A L R E P O R T
ENTREPRENEURIAL
DNA
EXTRAORDINARY
SERVICE
EASY-TO-USE
TECHNOLOGY
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
TOTAL ASSETS ($M)
TANGIBLE BOOK VALUE PER SHARE
1 7 . 8 %
C A G R o f
$877
5 - Y e a r
$767
$1,085
$991
$479
$500
9 . 1 %
C A G R o f
5 - Y e a r
$12.84(1)
$2.41
$13.08(1)
$2.44
$8.47
$8.86
$10.09
$11.45
$10.43
$10.64
2018Y
2019Y
2020Y
2021Y
2022Y
2023Y
2018Y
2019Y
2020Y
2021Y
2022Y
2023Y
Tangible Book Value Per Share
AOCI Add Back
(1)Excludes Negative AOCI Impact
freedom.bank
DFDDF
TABLE OF CONTENTS
02 A LETTER TO OUR SHAREHOLDERS
04
INDEPENDENT AUDITOR’S REPORT
06 CONSOLIDATED FINANCIAL STATEMENTS
06 CONSOLIDATED BALANCE SHEETS
08 CONSOLIDATED STATEMENTS OF OPERATIONS
09 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
10 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
11 CONSOLIDATED STATEMENTS OF CASH FLOWS
14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
49 SHAREHOLDER & COMPANY INFORMATION
51 SERVING OUR COMMUNITIES
A LETTER TO OUR SHAREHOLDERS
March 15, 2024
Dear Shareholders:
On behalf of our directors and officers, we are pleased to present the 2023 Annual Report for Freedom Financial
Holdings, Inc. that highlights our financial performance during the past year. We are proud of our colleagues’ efforts
and our culture of IDEAS that enabled us to achieve the milestone of crossing over $1.0 billion in total assets in 2023.
We are equally grateful to our clients who have affirmed that our focus on small and mid-sized businesses with
our company’s differentiation of an entrepreneurial DNA, extraordinary service and easy-to-use technology is
working. Our relationship-driven business model is focused on building long-term trust with our clients.
In a year when several high-profile bank failures caused clients around the country to rethink their banking
partnerships, we decided to take a very conservative financial posture. Our company has healthy capital ratios with
a Common Equity Tier 1 Ratio of 12.65%, abundant liquidity with a loan-to-deposit ratio of 83.6%, and a ratio of
uninsured deposits to total deposits of 25.7%, all as of December 31, 2023. This strong balance sheet allowed us to
remain open for additional new business and enabled us to grow our loan portfolio by 10.9% in 2023.
It should be noted in the current environment where real estate loans are being heavily scrutinized, we have a smaller
exposure to commercial real estate (CRE) than most banks our size with total investor CRE loans to total capital of
192% at year-end, which is well below the regulatory guidelines of 300%. Furthermore, our ratio of Allowance for
Credit Losses to loans held-for-investment was 1.37% as of December 31, 2023 well above the ratio in the prior year.
Your company is safe and sound and we are well-positioned to continue to serve our customers and community.
However, as described below, this approach weighed on our profitability in 2023 because of rising deposit costs and a
prudent increase in our allowance for credit losses.
Net income for the full year 2023, was $2,318,697 or $0.32 per diluted share, compared to $10,563,574 or $1.45 per
diluted share for the full year 2022. Pre-provision, pretax income for the full year 2023 was $7,909,845 compared
to pre-provision, pretax income of $14,501,162 for the full year 2022. Nevertheless, the tangible book value of the
Company’s common stock on December 31, 2023, increased to $10.64 per share compared to $10.43 per share on
December 31, 2022. Indeed, excluding AOCI adjustments, the tangible book value of the Company’s common stock
on December 31, 2023, was $13.09 per share compared to $12.87 per share on December 31, 2022.
Of course, despite the increase in the tangible book value of the company, we are disappointed with the bottom-line
earnings results for the year. The higher cost of deposits resulted in net interest margin compression of 86 basis points
from 3.63% in 2022 to 2.77% in 2023. Although our investment and loan yields were strong and increased in 2023,
the well-publicized increases in the federal funds rate as well as our deposit betas running higher than anticipated
caused the cost of deposits to increase at a more rapid pace. The cost of funds increased 220 basis points from 0.89%
to 3.09% in 2023 compared to prior year.
The Company also recognized a provision for credit losses of $5,737,441 for the full year 2023, much higher than the
prior year provision of $1,248,000. This was related to a single, legacy non-accrual relationship where the bank was
the victim of an apparent fraud by the borrower. We expect this to be a one-time event, but given current industry
trends, we also elected to take a several proactive steps to ensure that we accelerate improvement in asset quality and
earnings with non-accrual loan balances expected to decline materially in 2024.
The Company is fortunate to operate in the vibrant Washington DC MSA and our strategy to focus on entrepreneurs
with our talented banking professionals, growing regional offices, dedicated industry groups, and a leading
digital platform is working. Freedom Bank has five unique business areas that provide a mix of revenues that are
complementary in a very dynamic economy.
Commercial Banking is comprised of eleven bankers and portfolio managers and focuses on a variety of commercial
and industrial enterprises as well as commercial real estate markets. We were able to increase loans held for
investment by 10.8%, with commercial and industrial loans representing 23% of portfolio loans as of December 31,
02
A LETTER TO OUR SHAREHOLDERS
2023. We are proud of our loyal clients, and you will find tombstone announcements representing several notable
businesses for which we provided new loans in 2023 at the back of this report.
Community Banking includes five sales offices across Northern Virginia. We relocated our Chantilly Branch and
combined it with our Mortgage Division in 2023 and launched several new deposit products. This led to strong
deposit growth of 8.5% in 2023, with non-interest deposit balances now representing 16% of total deposits.
Treasury Services includes a team of six professionals providing state-of-the-art technology-focused banking services
to our business clients. We offer payment solutions on the Q2 and Fiserv platforms, Merchant Service through a
strategic partnership with Fiserv/First Data and Business Credit Cards offered through a strategic partnership with Elan
Financial Services.
SBA Banking has a team of six dedicated SBA professional offering SBA 7(a) and 504, USDA, and Bureau of Indian
Affairs guaranteed loans to meet the needs of Freedom’s clients in the DC Region and new clients throughout the
East Coast. The team generated loan production of $18.2 million for the 12 months ended December 31, 2023. The
Bank continues to operate as a Small Business Administration Preferred Lender.
Mortgage Banking is comprised of 12 mortgage loan officers and a dedicated operations team. We generated
residential loan production of $146.4 million in 2023, including $54.7 million of loans that were held in our portfolio.
We offer an extensive list of products, including VA, FHA, VHDA, and USDA mortgages, all of which are extremely
helpful to drive purchase volume and support first-time home buyers.
We continue to invest in our team and were excited to appoint Marc Tohir, Executive Vice President and Head of
Commercial Banking to help steer and scale our sales efforts. We also welcomed David Sanders, Senior Vice President
and Chief Accounting Officer to continue to build our company’s infrastructure for FIDICIA compliance and CECL
adoption as we cross over the $1.0 billion total asset threshold. Our group of executives and department managers
are talented, and we are working hard to find more strategies that promote the career and professional development
of our colleagues.
As an extension of our commitment to helping small businesses and promoting more inclusion in the financial
system, our Board of Directors continues to support the mission and strategy for the Freedom Bank Foundation
focused on economic inclusion to make the communities Freedom Bank serves more vibrant and more equitable. The
Foundation has now raised over $250,000 for the Fund, which makes loans to entrepreneurs of color in the DC region
administered by the Community Business Partnership.
We expect that the year ahead in 2024 will bring more stability in the banking industry and certainty on economic
conditions. This will enable us to drive higher levels of earnings from net interest and fee-based revenue, preserve our
strong liquidity and capital levels, and allow the full potential of our talented team to shine through with improved
financial results. We believe that our IDEAS Core Values – Innovation, Discipline, Experience, Attitude and Service
– will continue to serve as our guide for the Company as we continue to grow and serve our clients and communities.
Sincerely,
H. JASON GOLD
Chairman of the Board
JOSEPH J. THOMAS, CFA
President & CEO
A LETTER TO OUR SHAREHOLDERS
03
INDEPENDENT AUDITOR’S REPORT
Report of Independent Registered Public Accounting Firm
Stockholders and the Board of Directors of Freedom Financial Holdings, Inc.
Fairfax, Virginia
Crowe LLP
Independent Member Crowe Global
Crowe LLP
Independent Member Crowe Global
Opinion on the Financial Statements
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Stockholders and the Board of Directors of Freedom Financial Holdings, Inc.
Fairfax, Virginia
We have audited the accompanying consolidated balance sheets of Freedom Financial Holdings, Inc. (the "Company")
as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss),
Stockholders and the Board of Directors of Freedom Financial Holdings, Inc.
changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2023,
Fairfax, Virginia
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, 2023 and 2022, and
the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in
Opinion on the Financial Statements
conformity with accounting principles generally accepted in the United States of America.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Freedom Financial Holdings, Inc. (the
We have audited the accompanying consolidated balance sheets of Freedom Financial Holdings, Inc. (the
Change in Accounting Principle
"Company") as of December 31, 2021, the related consolidated statements of operations, comprehensive
"Company") as of December 31, 2021, the related consolidated statements of operations, comprehensive
income, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes
income, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes
As discussed in Note 1 to the financial statements, the Company changed its method for accounting for credit losses
(collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly,
(collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly,
effective January 1, 2023, due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards
in all material respects, the financial position of the Company as of December 31, 2021, and the results of
in all material respects, the financial position of the Company as of December 31, 2021, and the results of
Codification No. 326, Financial Instruments - Credit Losses (ASC 326). The Company adopted the new credit loss
its operations and its cash flows for the year then ended, in conformity with accounting principles generally
its operations and its cash flows for the year then ended, in conformity with accounting principles generally
standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be
accepted in the United States of America.
accepted in the United States of America.
reported in accordance with previously applicable generally accepted accounting principles. The adoption of the new
credit loss standard and its subsequent application is also communicated as a critical audit matter below.
Basis for Opinion
Basis for Opinion
We conducted our audit in accordance with the auditing 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 audit, 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.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to
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 audit. We are a public accounting
express an opinion on the Company's financial statements based on our audit. We are a public accounting
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are
firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
required to be independent with respect to the Company in accordance with the U.S federal securities laws
required to be independent with respect to the Company in accordance with the U.S federal securities laws
the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
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 audit in accordance with the auditing standards of the PCAOB and in accordance with
auditing standards generally accepted in the United States of America. Those standards require that we
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
generally accepted in the United States of America. Those standards require that we plan and perform the audit to
of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of
to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal
expressing an opinion on the effectiveness of the Company's internal control over financial reporting.
control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control
Accordingly, we express no such opinion.
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 audit 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
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
financial statements. Our audit also included evaluating the accounting principles used and significant
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
estimates made by management, as well as evaluating the overall presentation of the financial statements.
also included evaluating the accounting principles used and significant estimates made by management, as well as
We believe that our audits provide a reasonable basis for our opinion.
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
Other Matter
Our audit 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 audit 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.
Other Matter
Critical Audit Matter
The financial statements of The Freedom Bank of Virginia for the year ended December 31, 2020, were
audited by other auditors, who expressed an unmodified opinion on those statements on March 9, 2021.
The critical audit matter communicated below is a matter arising from the current period audit of the financial
As disclosed in Note 1 of the financial statements, a reorganization occurred during 2021 from The Freedom
statements that was communicated or required to be communicated to the audit committee and that: (1) relates
Bank of Virginia to Freedom Financial Holdings, Inc.
The financial statements of The Freedom Bank of Virginia for the year ended December 31, 2020, were
audited by other auditors, who expressed an unmodified opinion on those statements on March 9, 2021.
As disclosed in Note 1 of the financial statements, a reorganization occurred during 2021 from The Freedom
Bank of Virginia to Freedom Financial Holdings, Inc.
04 INDEPENDENT AUDITOR’S REPORT
(Continued)
(Continued)
to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our
opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter
below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses
On January 1, 2023, the Company adopted ASU 2016-13 to replace the incurred loss model for loans and other
financial assets with an expected loss model, which is referred to as the current expected credit loss (CECL) model as
described in Notes 1 and 4 of the consolidated financial statements and the explanatory paragraph above.
The Company applies the weighted average remaining life methodology to estimate the collective quantified
component of the allowance to all portfolio segments, which is referred to as the loss estimation model. Collective
calculation methodologies utilize the Company’s historical default and loss experience adjusted for future economic
forecasts. Historical loss experience provides the basis for the estimation of expected credit losses. If historical loss
experience does not exist for the company, peer group historical loss experience is used from peers of a similar
size and geographic area. Adjustments to historical loss information are made for changes in the experience,
ability, and depth of lending management and other relevant staff, changes in the value of underlying collateral
for collateral-dependent loans, the existence and effect of any concentrations of credit, and changes in the level of
such concentrations, changes in international, national, regional, and local economic and business conditions and
developments that affect the collectability of the portfolio, including the condition of various market segments, the
effect of other external factors such as competition and legal and regulatory requirements on the level of estimated
credit losses in the institution's existing portfolio, changes in the volume and severity of past due loans, the volume
of nonaccrual loans, and the volume and severity of adversely classified or graded loans, changes in the quality of the
institution's loan review system, changes in the nature and volume of the portfolio and in the terms of loans as well as
changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off,
and recovery practices not considered elsewhere in estimating credit losses.
Auditing the allowance for credit losses was identified by us as a critical audit matter because of the significant
auditor judgment applied and significant audit effort required to evaluate the subjective and complex judgments
made by management throughout the initial adoption and subsequent application processes, including the loss
estimation model and significant judgements related to adjustments to historical loss information.
The primary substantive procedures performed to address this critical audit matter include:
• Evaluating the reasonableness and appropriateness of the weighted average remaining life methodology
including evaluating judgments in estimating expected credit losses in the loss estimation model.
• Evaluating judgments made by management on the loss estimation model.
• Testing data used in the loss estimation model for completeness and accuracy.
• Evaluating the appropriateness and reasonableness of the factors and judgments used in adjustments to
historical loss information.
• Evaluating the relevance and reliability of the underlying data used to derive adjustments to historical
loss information.
• Testing the completeness and accuracy of inputs utilized in the calculation of the adjustments to
historical loss information for each portfolio segment.
• Testing the mathematical accuracy of the adjustments to historical loss information.
We have served as the Company's auditor since 2021.
Crowe LLP
Washington, D.C.
March 15, 2024
INDEPENDENT AUDITOR’S REPORT
05
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
December 31
2023 and 2022
ASSETS
Cash and due from financial institutions
Interest-bearing deposits with banks
Cash and Cash Equivalents
Securities available-for-sale
Securities held to maturity, Net of Allowance for Credit Losses
of $84,434 as of 2023 (fair value 2023 - $17,611,533; 2022 - $14,634,802)
Restricted stock investments
Loans held for sale
Loans receivable
Allowance for credit losses
Net Loans
Premises and equipment, net
Accrued interest receivable
Deferred tax asset, net
Bank-owned life insurance
Right-of-use asset, net
Other assets
TOTAL ASSETS
2023
2,442,050
2022
$ 2,099,062
21,806,078
32,674,953
24,248,128
34,774,015
211,263,518
181,558,037
20,114,269
17,096,010
4,769,900
3,889,200
6,663,929
5,064,385
769,743,881
700,003,008
(10,519,335)
(7,614,120)
759,224,546
692,388,888
878,957
977,393
3,721,730
3,784,076
7,633,840
6,997,229
26,731,339
26,248,974
1,987,075
1,736,285
17,430,819
16,484,808
1,084,668,050
$990,999,300
NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements.
06
CONSOLIDATED FINANCIAL STATEMENTS
LIABILITIES
Deposits
Demand deposits
Non-interest bearing
Interest bearing
Savings deposits
Time deposits
Total Deposits
Borrowings
PPP liquidity facility advances
Subordinated debt (net of issuance costs)
Allowance for Credit losses on off-balance sheet exposures
Accrued interest payable
Lease liability
Other liabilities
TOTAL LIABILITIES
Commitments and contingent liabilities - See Note 1 and 17
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 5,000,000 shares authorized;
0 shares issued and outstanding, 2023 and 2022
Common stock, $0.01 par value, 25,000,000 shares authorized:
23,000,000 shares voting and 2,000,000 shares non-voting.
Voting Common Stock:
6,582,677 and 6,583,328 shares issued and outstanding
at December 31, 2023 and 2022, respectively (includes 88,993
and 72,069 unvested shares, respectively)
Non-Voting Common Stock:
673,000 shares issued and outstanding
at December 31, 2023 and 2022, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss), net
Retained earnings
Total Stockholders’ Equity
2023
2022
$ 143,956,306
$ 187,416,628
519,339,202
409,760,574
4,120,770
5,977,828
253,641,860
245,840,048
921,058,138
848,995,078
50,000,000
25,000,000
270,576
5,826,298
19,752,719
19,674,794
89,029
-
2,842,646
1,265,796
1,925,671
1,862,773
11,501,219
13,060,825
1,007,439,998
$ 915,685,564
-
-
64,937
65,113
6,730
6,730
58,320,419
58,241,499
(17,715,015)
(17,113,387)
36,550,981
34,113,781
77,228,052
75,313,736
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$ 1,084,668,050
$ 990,999,300
NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED FINANCIAL STATEMENTS 07
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31
2023 and 2022
INTEREST INCOME
Interest and fees on loans
Interest on investment securities
Taxable
Tax-exempt
Interest on deposits with banks
Total Interest Income
INTEREST EXPENSE
Interest on deposits
Interest on borrowings
Total Interest Expense
Net Interest Income
PROVISION FOR CREDIT LOSSES
Net Interest Income After
Provision for Credit Losses
NON-INTEREST INCOME
Gain on sale of mortgage loans
Gain on sale of SBA-guaranteed loans
Gain on sale/call of investment securities
Service charges and other income
Loan servicing income
Swap fee income
Increase in cash surrender value of
bank-owned life insurance
Total Non-Interest Income
NON-INTEREST EXPENSES
2023
$ 44,430,123
2022
$ 32,213,808
9,749,795
602,891
1,738,669
5,521,973
589,783
601,382
56,521,478
38,926,946
29,227,071
102,593
29,329,664
6,512,624
826,392
7,339,016
27,191,814
31,587,930
5,737,441
1,248,000
21,454,373
30,339,930
1,466,761
2,271,630
-
-
1,294,905
226,734
-
906,943
3,895,343
997,967
19,262
1,442,681
218,190
68,404
669,095
5,687,229
Officer and employee compensation and benefits
14,322,882
15,160,439
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
746,494
756,758
805,468
1,565,129
1,323,244
473,676
1,190,263
320,197
1,266,050
705,170
363,099
1,062,306
1,212,233
448,904
990,442
355,710
1,673,201
1,209,644
23,177,312
22,773,997
NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements.
08 CONSOLIDATED FINANCIAL STATEMENTS
INCOME BEFORE INCOME TAXES
INCOME TAX EXPENSE
NET INCOME
2023
2022
2,172,404
13,253,162
(146,293)
2,689,588
$ 2,318,697
$ 10,563,574
EARNINGS PER COMMON SHARE – BASIC
$ 0.32
$ 1.45
EARNINGS PER COMMON SHARE – DILUTED
$ 0.32
$ 1.45
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING – BASIC
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING – DILUTED
7,292,638
7,285,726
7,320,455
7,307,659
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years Ended December 31
2023 and 2022
Net Income
Other Comprehensive Income:
Unrealized gains/(losses) on securities:
Unrealized holdings gain/(loss) arising during the period
Reclassification adjustment for losses (gains) included in net income
Tax effect
Net of Tax
Unrealized gains/(losses) on cash flow hedge:
Unrealized holdings gain/(loss)
Reclassification adjustment for losses (gains) included in net income
Tax effect
Net of Tax
Total Other Comprehensive Loss
2023
2022
$ 2,318,697
$ 10,563,574
211,460
(24,717,529)
-
(19,262)
(47,579)
5,562,335
163,881
(19,174,456)
(930,425)
1,784,555
-
-
164,916
(374,758)
(765,509)
1,409,797
(601,628)
(17,764,659)
COMPREHENSIVE INCOME (LOSS)
$ 1,717,069
$ (7,201,085)
NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED FINANCIAL STATEMENTS 09
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31
2023 and 2022
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, JAN. 1, 2022
7,262,757
$ 72,628 $59,884,615
$ 651,272
$23,550,209
$ 84,158,724
Net income
Other comprehensive loss
-
-
-
-
-
-
Common stock repurchased
(173,400)
(1,734)
(2,462,312)
Stock options exercised
Restricted stock - vested
net of shares withheld
Stock-based compensation
- stock options
Stock-based compensation
- restricted stock
45,739
49,163
-
-
457
492
-
-
283,124
(96,442)
-
632,514
-
10,563,572
10,563,572
(17,764,659)
-
-
-
-
-
-
-
-
-
-
-
(17,764,659)
(2,464,046)
283,581
(95,950)
-
632,514
BALANCE, DEC. 31, 2022
7,184,259
$ 71,843 $58,241,499 $ (17,113,387) $34,113,781
$ 75,313,736
Net income
Other comprehensive loss
-
-
-
-
-
-
Common stock repurchased
(56,632)
(567)
(573,193)
Stock options exercised
-
-
-
Restricted stock - vested
net of shares withheld
Stock-based compensation
- stock options
Stock-based compensation
- restricted stock
Cumulative Effect Change
in Accounting Principle -
CECL
39,057
391
(139,191)
-
-
-
-
-
-
-
791,304
-
-
2,318,697
2,318,697
(601,628)
-
-
-
-
-
-
-
-
-
-
-
-
(601,628)
(573,760)
-
(138,800)
-
791,304
118,503
118,503
BALANCE, DEC. 31, 2023
7,166,684
$ 71,667 $58,320,419 $ (17,715,015) $36,550,981
$ 77,228,052
NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements.
10 CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
2023 and 2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash from
operating activities:
Provision for credit losses
Depreciation and amortization of premises and equipment
Net amortization of available-for-sale securities
Deferred income tax benefit
Net realized gains on sales of investment securities
Net gain on sale of mortgage loans
Net gain on sale of SBA guaranteed loans
Loans held for sale originated
Proceeds from the sale of loans held for sale
Proceeds from the sale of SBA loans
Stock-based compensation expense
Subordinated debt amortization expense
Earnings on company-owned life insurance
Repayment of operating lease liabilities
(Increase) decrease in:
Accrued interest receivable
Other assets
Increase (decrease) in:
Accrued interest payable
Other liabilities
Net Cash Provided by Operating Activities
2023
$ 2,318,697
2022
$ 10,563,574
5,737,441
1,248,000
144,432
(199,263)
(473,592)
-
165,988
393,975
(180,311)
(19,262)
(1,466,761)
(2,271,630)
-
(997,967)
(83,817,402)
(234,849,336)
83,684,620
247,668,382
-
12,255,948
652,504
77,925
(743,011)
(187,891)
536,564
57,925
(669,095)
7,491
62,346
(456,522)
(1,317,364)
(3,327,862)
1,576,850
(3,059,606)
971,559
2,566,970
3,850,767
32,803,549
NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED FINANCIAL STATEMENTS
11
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
2023 and 2022
CASH FLOWS FROM INVESTING ACTIVITIES
2023
2022
Available-for-sale securities:
Proceeds from sales
Maturities, prepayments and calls
Purchases
Held-to-maturity securities:
Maturities, prepayments and calls
Purchases
(Purchase) sale of restricted stock investments, net
Loan (originations) and payments (not including PPP), net
PPP loan origination
PPP loan payments
SBA loan origination, net
Purchased loans, net of payments
Acquisition of premises and equipment
Redemption (purchase) of company-owned life insurance
Net Cash Used in Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits, net
Advances from Borrowings
Repayment of Borrowings
$ -
$ -
15,742,241
18,545,768
(45,036,999)
(53,682,915)
899,607
(4,000,000)
(880,700)
-
916,864
(567,950)
(77,804,749)
(116,051,047)
-
-
5,555,722
26,229,618
-
-
(45,996)
260,643
(21,504,915)
-
(4,177)
(1,000,000)
(105,310,231)
(147,118,754)
$ 72,063,059
$ 147,301,677
125,000,000
75,000,000
(100,000,000)
(79,035,714)
Advances from the Payment Protection Plan Liquidity Facility (“PPPLF”)
-
-
Repayment of advances from the PPPLF
(5,555,722)
(26,229,617)
Proceeds from subordinated debt, net of issuance costs
Proceeds from stock options
Repurchase of common stock
Net Cash Provided by Financing Activities
-
-
-
283,581
(573,760)
(2,464,046)
90,933,577
114,855,881
Net Increase in Cash and Cash Equivalents
(10,525,887)
540,674
Cash and Cash Equivalents, Beginning of Year
34,774,015
34,233,341
CASH AND CASH EQUIVALENTS, END OF YEAR
$ 24,248,128
$ 34,774,015
NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements.
12 CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
2023 and 2022
SUPPLEMENTAL NONCASH DISCLOSURES
2023
2022
Unrealized loss on securities available-for-sale, net
$
211,460 $ (24,736,791)
Loans transferred (to)/from held-for-sale from/to portfolio
Right-of-use assets obtained in exchange for lease liabilities
$
$
-
-
$ (2,314,677)
$
-
Unrealized gain/(loss) on cash flow derivative
$ (930,425) $ 1,784,555
Unfunded commitment on limited partnership investments
$ 4,089,337 $ 3,500,000
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest
$ 27,877,523
$ 6,367,457
Cash paid during the year for income taxes
$ 980,000
$ 2,085.000
NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED FINANCIAL STATEMENTS
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
1. Nature of Operations and Summary of Significant Accounting Policies
NATURE OF OPERATIONS
Freedom Financial Holdings, Inc. (the “Company”) is a holding company headquartered in Fairfax, Virginia. The Company
is the parent company of its wholly owned subsidiary, The Freedom Bank of Virginia (the “Bank”). The Bank subsidiary 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 Company provides
banking services at its branch offices in Vienna, Fairfax, Chantilly, Reston and Manassas, Virginia, and serves customers
primarily in the Northern Virginia area. Additionally, the Company has a mortgage division located in Chantilly, Virginia and
a small business lending division in Harrison, New York.
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of Freedom Financial Holdings, Inc. and its wholly owned
subsidiary. All significant intercompany transactions have been eliminated in consolidation.
RECLASSIFICATION
Amounts in financial statements and footnotes for prior periods are reclassified whenever necessary to conform to the
current year’s presentation. Reclassifications had no material effect on prior year net income or shareholders’ equity.
USE OF ESTIMATES
To prepare financial statements in conformity with accounting principles generally accepted in the United States of America
management makes estimates and assumptions based on available information. These estimates and assumptions affect the
amounts reported in the financial statements and the disclosures provided, and actual results could differ.
OPERATING SEGMENTS
While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed
and financial performance is evaluated on a Company-wide basis, and operating segments are aggregated into one as
operating results for all segments are similar. Accordingly, all the financial service operations are considered by management
to be aggregated into one reporting operating segment.
CASH AND CASH EQUIVALENTS
The Company maintains interest bearing deposits with other institutions. Interest bearing deposits are valued at cost. Interest
income is recorded as interest 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 Company 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 through the earliest of the call date, where applicable, or the investment’s maturity date.
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALLOWANCE FOR CREDIT LOSSES – HELD-TO-MATURITY SECURITIES
Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type.
The estimate for expected credit losses considers historical credit loss information tat is adjusted for current conditions and
reasonable and supportable forecasts.
Management classifies the held-to-maturity portfolio into the following major security types: corporate notes and municipal
securities.
ALLOWANCE FOR CREDIT LOSSES – AVAILABLE-FOR-SALE SECURITIES
Management determines expected credit losses on available for sale securities to be recognized through a valuation allowance
instead of as a direct write-down to the amortized cost basis of the security. An available for sale security is considered
impaired if the fair value is less than its amortized cost basis. If any portion of the decline in fair value is related to credit, the
amount of allowance is determined as the portion related to credit, limited to the difference between the amortized cost
basis and the fair value of the security. If we have the intent to sell, or believe it is more likely than not we will be required to
sell an impaired available for sale security before recovery of the amortized cost basis, the credit loss is recorded as a direct
write-down of the amortized cost basis. Credit losses on investment securities are recognized through the Provision for credit
losses on our income statement. Declines in the fair value of available for sale securities that are not considered credit related
are recognized in AOCI in the balance sheet.
RESTRICTED STOCK INVESTMENTS
Federal Reserve Bank stock, Federal Home Loan Bank (FHLB) stock, Federal Reserve Bank (FRB) 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 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 cost or market value. The Company 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.
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 credit 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 placed on nonaccrual status or
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 Company 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 Company 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15
ALLOWANCE FOR CREDIT LOSSES - LOANS
The allowance for credit losses represents an amount which, in management's judgment, reflects the lifetime expected losses
that may be sustained on outstanding loans at the balance sheet date based on the evaluation of the size and current risk
characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic
conditions and prepayment experience. The allowance is measured and recorded upon the initial recognition of a financial
asset. The allowance is reduced by charge-offs, net of recoveries of previous losses, and is increased or decreased by a
provision or credit for credit losses, which is recorded as a current period expense.
Management estimates the allowance balance using relevant available information, for internal and external sources relating
to past events, current events, current conditions and reasonable and supportable forecasts. Historical loss experience
provides the basis for the estimation of expected credit losses. If historical loss experience does not exist for the company,
peer group historical loss experience is used from peers of a similar size and geographic area. Adjustments to historical loss
information are made for changes in the experience, ability, and depth of lending management and other relevant staff,
changes in the value of underlying collateral for collateral-dependent loans, the existence and effect of any concentrations
of credit, and changes in the level of such concentrations, changes in international, national, regional, and local economic
and business conditions and developments that affect the collectability of the portfolio, including the condition of various
market segments, the effect of other external factors such as competition and legal and regulatory requirements on the
level of estimated credit losses in the institution's existing portfolio, changes in the volume and severity of past due loans,
the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans, changes in the quality
of the institution's loan review system, changes in the nature and volume of the portfolio and in the terms of loans as well
as changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and
recovery practices not considered elsewhere in estimating credit losses.
The Company’s methodology for estimating the allowance includes a quantified reserve that reflects historical default
and loss experience adjusted for expected economic conditions throughout a reasonable and supportable period and in
addition to qualitative factors that consider the expected impact of certain factors not fully captured in the quantified
reserve, including concentrations of the loan portfolio, expected changes to the economic forecasts, large relationships, early
delinquencies, and factors related to credit administration, including, among others, loan-to-value ratios, borrowers’ risk
rating and credit score migrations.
The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The company has
identified the following portfolio segments:
• Commercial and Industrial
• Real estate – commercial
• Real estate construction
• Real estate – residential
• Consumer and other
The Company applies the weighted average remaining life methodology to estimate the collective quantified component of
the allowance to all portfolio segments. Collective calculation methodologies utilize the Company’s historical default and loss
experience adjusted for future economic forecasts. The most significant economic variable included in the reasonable and
supportable forecast is the unemployment rate.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also
included in the collective evaluation. When management determines that foreclosure is probable, expected credit losses are
based on the fair value of the collateral at the reporting date adjusted for selling costs as appropriate.
PREMISES AND EQUIPMENT
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 Company amortizes
software over three years using the straight-line method.
Expenditures for maintenance, repairs and improvements under $1,000 are charged to earnings. When 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.
16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SERVICING RIGHTS
When loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement
effect recorded in gains on sales of loans. Fair value is based on a valuation model that calculates the present value of
estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization
method which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the
estimated future net servicing income of the underlying loans. Servicing rights are evaluated for impairment based upon the
fair value of the rights are compared to the carrying amount.
Servicing fee income, which is reported on the income statement as Loan Servicing Income, is recorded for fees earned for
servicing loans. The fees are based on a contractual percentage of the outstanding principal; or a fixed amount per loan and
are recorded as income when earned. Servicing fees totaled $226,734 and $218,190 for the years ended December 31, 2023
and 2022, respectively.
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 credit 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 Company had no other real estate owned on December 31, 2023 and 2022.
BANK-OWNED LIFE INSURANCE
The Company has entered into bank-owned single premium life insurance policies that are maintained by three
counterparties. Under the bank-owned life insurance policies, executives or other key individuals are the insured and the
Company 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 Company monitors the financial strength and condition of all counterparties.
DERIVATIVES
At the inception of a derivative contract, the Company designates the derivative as one of three types based on the
Company’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 Company 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 Company 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 Company 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17
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 Company is exposed to losses if a counterparty fails to make its payments under a contract in which the Company is
in the net receiving position. The Company anticipates that the counterparties will be able to fully satisfy their obligations
under the agreements. All the contracts to which the Company is a party settle monthly or quarterly. In addition, the
Company obtains collateral above certain thresholds of the fair value of its hedges for each counterparty based upon their
credit standing and the Company has netting agreements with the dealers with which it does business.
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. Provisions include that such conversion
must (a) be permitted by guidance and policies established by the Board of Governors of the Federal Reserve System as
applicable and in effect at the time of transfer and (b) would not cause or result in the holder of such non-voting common
stock, together with and other holder (a “Related Holder”) of the Corporation’s capital stock, to own, control, or have the
power to vote 10% or more of the voting common stock outstanding at any time without giving effect to any reductions in
the percentage of voting common stock owned, controlled or held by such holder and any Related Holder so resulting from
transfers of the voting common stock to third parties.
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 tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and
liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between
carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax
examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit
that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test,
no tax benefit is recorded.
The Company recognizes interest and/or penalties related to income tax matters in other operating expense.
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 Company. Potential common shares that may be issued by the Company relate solely to stock
options outstanding during the period and are determined using the treasury stock method.
18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
2023
2022
7,292,638
7,285,726
27,817
21,933
7,320,455
7,307,659
There were no antidilutive options for the year ended December 31, 2023 and 2022. Non-vested restricted common shares,
which carry all rights and privileges of a common share with respect to the stock, including the right to vote, were included in
the basic and diluted per common share calculations.
STOCK-BASED COMPENSATION
The Company 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 Company 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/(LOSS)
Comprehensive income/(loss) consists of net income and other comprehensive income/(loss). Other comprehensive income/
(loss) 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.
COMMITMENTS AND CONTINGENT LIABILITIES
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.
In the ordinary course of business, the Company 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19
Other non-interest income primarily includes income on bank owned life insurance contracts, loan swap fee income, letter of
credit fees and gains on sale of loans held for sale, none of which are within the scope of ASC 606.
RECENTLY ADOPTED PRONOUNCEMENTS
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, as amended
On January 1, 2023, the company adopted ASU 2016-13 to replace the incurred loss model for loans and other financial assets with
an expected loss model, which is referred to as the current expected credit loss (CECL) model. The CECL model is applicable to the
measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held-to maturity debt
securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of
credit, financial guarantees, and other similar instruments) and net investments in certain leases recognized by a lessor. In addition.,
the amendments in Topic 326 require credit losses on available-for-sale to be presented as a valuation allowance rather than as a
direct write-down on.
The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and
off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023, are presented under ASC 326
while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net
increase to retained earnings of $118,503 as of January 1, 2023 for the cumulative effect of adopting ASC 326.
Adoption Date January 1, 2023
AS RECORDED
UNDER ASC 326
PRE-ASC 326
ADOPTION
IMPACT OF ASC
326 ADOPTION
Assets:
Held-to-maturity
Corporate Notes
Municipal Securities
Allowance for credit Losses on debt securities
Loans
Commercial and industrial
Real Estate - commercial
Real Estate - construction
Real Estate - residential
Consumer
$ 21,120
$ -
$ 21,120
84,509
$ 105,629
-
-
84,509
$ 105,629
$ 1,376,776
$ 1,423,213
$ (46,437)
3,408,849
1,064,369
533,158
753,336
4,517,637
(1,108,788)
535,005
692,107
446,158
529,364
(158,949)
307,178
Allowance for Credit Losses on Loans
$ 7,136,488
$ 7,614,120
$ (477,632)
Liabilities:
Allowance for credit losses on unfunded commitments
$ 219,093
$ -
$ 219,093
ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and
Vintage Disclosures
On January 1, 2023, we adopted ASU 2022-02, which eliminates the accounting guidance for TDRs and replaces TDRs with loan
modifications to borrowers experiencing financial difficulty. Modifications occur as a result of our loss mitigation activities. A variety
of solutions are offered to borrowers, including loan modifications that may result in principal forgiveness, interest rate reductions,
term extensions, payment delays, repayment plans.
On January 1 2023, we adopted (ASU) 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method,
which addresses issues raised after the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities. A major provision of ASU 2017-12 was the addition of the last-of-layer hedging method. For a
closed portfolio of fixed-rate prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable
financial instruments, such as mortgages or mortgage-backed securities, the last-of-layer method allows an entity to hedge its
exposure to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by
prepayments, defaults, and other events affecting the timing and amount of cash flows.
20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2023, the FASB issued ASU 2023-02, "Investments—Equity Method and Joint Ventures (Topic 323): Accounting for
Investments in Tax Credit Structures Using the Proportional Amortization Method". ASU 2023-02 allows reporting entities to
elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program
giving rise to the related income tax credits. The amendment in this ASU also remove the specialized guidance for low-income-
housing tax credit investments that are not accounted for using the proportional amortization method and instead require that
those LIHTC investments be accounted for using the guidance in other GAAP. The amendments are effective for fiscal years
beginning after December 15, 2023, including interim periods within those fiscal years. The adoption of this pronouncement is
not expected to have a material impact on the Consolidated Financial Statements.
2. Restriction of Cash and Due from Banks
The Company is required to maintain reserve funds in cash or on deposit with the Federal Reserve. The required reserve on
December 31, 2023 and 2022 was $0. Additionally, the Company is required to pledge cash as collateral for its derivative
positions with its counterparty. The required reserve on December 31, 2023 and 2022 was $0.
3. Investment Securities
The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-
maturity on December 31, 2023 and 2022 and the corresponding amounts of gross unrealized gains and losses recognized in
accumulated other comprehensive income (loss) and gross unrecognized gains and losses:
DEC. 31, 2023
Available-for-sale
Corporate notes
Agency notes
Mortgage-backed securities
Municipal securities - tax exempt
Municipal securities - taxable
SBA loan pools
Asset-backed securities
AMORTIZED
COST
GROSS
UNREALIZED
GAINS
GROSS
UNREALIZED
LOSSES
FAIR
VALUE
$ 42,234,907
$ 8,591
$ (5,868,898)
$ 36,374,600
1,000,000
-
(24,671)
975,329
86,019,318
221,612
(10,221,181)
76,019,749
11,242,484
25,250,785
-
(1,017,708)
10,224,776
1,005
(4,209,224)
21,042,566
5,813,205
11,218
(120,235)
5,704,188
12,672,624
118,839
(131,059)
12,660,404
Private-label mortgage-backed securities
18,380,368
10,781
(2,596,245)
15,794,904
Private-label commercial mortgage-backed
securities
10,980,367
9,437
(284,146)
10,705,658
Private-label collateralized loan obligations
21,965,107
12,327
(216,090)
21,761,344
Total Available-for-sale
$ 235,559,165
$ 393,810
$(24,689,457)
$ 211,263,518
Held-to-maturity
Corporate notes
Municipal securities - tax exempt
Municipal securities - taxable
AMORTIZED
COST
GROSS
UNRECOGNIZED
GAINS
GROSS
UNRECOGNIZED
LOSSES
FAIR
VALUE
$4,000,000
10,428,125
5,686,144
-
$ (476,920)
$3,523,080
7,818
(1,091,614)
9,344,329
-
(942,020)
4,744,124
Total Held-to-maturity
$ 20,114,269
$ 7,818
$ (2,510,554)
$ 17,611,533
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21
DEC. 31, 2022
Available-for-sale
Corporate notes
Agency notes
Mortgage-backed securities
Municipal securities - tax exempt
Municipal securities - taxable
SBA loan pools
Asset-backed securities
Private-label mortgage-backed securities
Private-label commercial mortgage-backed
securities
AMORTIZED
COST
GROSS
UNREALIZED
GAINS
GROSS
UNREALIZED
LOSSES
FAIR
VALUE
$ 40,939,981
$ 28,982
$ (4,979,073)
$ 35,989,890
1,000,000
66,301,194
11,294,174
25,100,769
6,491,553
10,111,316
18,758,417
4,847,507
-
-
-
-
(34,633)
965,367
(8,995,673)
57,305,521
(1,503,101)
9,791,073
(5,234,667)
19,866,102
18,835
72,924
(90,987)
6,419,401
(292,766)
9,891,474
-
-
(2,963,754)
15,794,663
(113,798)
4,733,709
Private-label collateralized loan obligations
21,220,233
13,743
(433,139)
20,800,837
Total Available-for-sale
$206,065,144
$ 134,484
$(24,641,591)
$181,558,037
Held-to-maturity
Corporate notes
Municipal securities - tax exempt
Municipal securities - taxable
AMORTIZED
COST
GROSS
UNRECOGNIZED
GAINS
GROSS
UNRECOGNIZED
LOSSES
FAIR
VALUE
$ 4,000,000
$ -
$ (528,960)
$ 3,471,040
11,242,783
4,028
(1,412,437)
9,834,374
1,853,227
-
(523,839)
1,329,388
Total Held-to-maturity
$ 17,096,010
$ 4,028
$ (2,465,236)
$ 14,634,802
The amortized cost and fair value of securities are shown by contractual maturity. Expected maturities may differ from
contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
Securities not due at a single maturity date are shown separately:
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
$ 250,000 $ 251,005
$ -
$ -
10,938,013
10,116,125
58,925,330
52,888,837
4,654,717
1,686,144
4,135,376
1,204,104
50,065,769
45,487,240
13,773,408
12,272,053
120,179,112
108,743,207
20,114,269
17,611,533
Mortgage-backed securities
115,380,053
102,520,311
-
-
$ 235,559,165 $211,263,518
$ 20,114,269
$ 17,611,533
Securities pledged to the Federal Home Loan Bank (FHLB) at years ending 2023 and 2022 had a carrying amount of 43,623,462
and $76,304,307, respectively. Securities pledged to the Federal Reserve Bank (FRB) at years ending 2023 and 2022 had a
carrying amount of $8,539,099 and $0, respectively.
22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information pertaining to securities with gross unrealized losses on December 31, 2023, aggregated by investment category and
length of time that individual securities have been in a continuous loss position, is as follows:
LESS THAN 12 MONTHS
OVER 12 MONTHS
TOTAL
GROSS
UNREALIZED
LOSSES
FAIR
VALUE
GROSS
UNREALIZED
LOSSES
FAIR
VALUE
GROSS
UNREALIZED
LOSSES
FAIR
VALUE
DEC. 31, 2023
Available-for-sale
Corporate notes
Agency notes
$ 86,958 $ 2,475,527
$ 5,781,941 $ 31,890,481 $ 5,868,899 $ 34,366,008
-
-
24,671
975,329
24,671
975,329
Mortgage-backed securities
35,142
5,684,868
10,186,039
49,149,965
10,221,181
54,834,833
Municipal securities - tax exempt
8,305
520,091
1,009,403
9,704,685
1,017,708
10,224,776
Municipal securities - taxable
-
-
4,209,224
20,791,560
4,209,224
20,791,560
SBA loan pools
Asset-backed securities
Private-label mortgage-backed
securities
Private-label commercial
mortgage-backed securities
Private-label collateralized loan
obligations
8,873
519,849
111,362
3,663,028
120,235
4,182,877
9,545
1,914,947
121,514
4,353,612
131,059
6,268,559
-
-
2,596,245
14,854,381
2,596,245
14,854,381
169,269
4,427,126
114,877
3,313,256
284,146
7,740,382
15,512
1,963,871
200,577
11,730,377
216,089
13,694,248
TOTALS
$ 333,604 $17,506,279 $24,355,853 $150,426,674 $ 24,689,457 $167,932,953
GROSS
UNRECOGNIZED
LOSSES
FAIR
VALUE
GROSS
UNRECOGNIZED
LOSSES
FAIR
VALUE
GROSS
UNRECOGNIZED
LOSSES
FAIR
VALUE
Held-to-maturity
Corporate notes
$ - $ -
$ 476,920 $ 3,523,080 $ 476,920 $ 3,523,080
Municipal securities - tax exempt
-
-
1,091,614
5,174,451
1,091,614
5,174,451
Municipal securities - taxable
459,980
3,540,020
482,040
1,204,104
942,020
4,744,124
$ 459,980 $ 3,540,020
$ 2,050,574 $ 9,901,635 $ 2,510,554 $ 13,441,655
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23
LESS THAN 12 MONTHS
OVER 12 MONTHS
TOTAL
GROSS
UNREALIZED
LOSSES
FAIR
VALUE
GROSS
UNREALIZED
LOSSES
FAIR
VALUE
GROSS
UNREALIZED
LOSSES
FAIR
VALUE
$ 1,211,963 $19,765,814
$ 3,767,110
$14,695,095 $ 4,979,073 $34,460,909
34,633
965,367
-
-
34,633
965,367
DEC. 31, 2022
Available-for-sale
Corporate notes
Agency notes
Mortgage-backed securities
2,738,434
32,460,618
6,257,239
24,847,600
8,995,673
57,308,218
Municipal securities - tax exempt
653,145
5,801,833
849,956
3,989,240
1,503,101
9,791,073
Municipal securities - taxable
657,339
4,011,934
4,577,328
15,854,168
5,234,667
19,866,102
SBA loan pools
Asset-backed securities
Private-label mortgage-backed
securities
Private-label commercial
mortgage-backed securities
Private-label collateralized loan
obligations
18,150
2,287,944
72,837
2,807,755
90,987
5,095,699
108,602
4,579,351
184,164
1,824,356
292,766
6,403,707
242,088
2,344,048
2,721,666
13,450,615
2,963,754
15,794,663
113,798
4,733,709
-
-
113,798
4,733,709
204,006
11,091,217
229,133
5,777,900
433,139
16,869,117
TOTALS
$ 5,982,158 $ 88,041,835 $ 18,659,433 $ 83,246,729 $ 24,641,591 $171,288,564
GROSS
UNRECOGNIZED
LOSSES
FAIR
VALUE
GROSS
UNRECOGNIZED
LOSSES
FAIR
VALUE
GROSS
UNRECOGNIZED
LOSSES
FAIR
VALUE
Held-to-maturity
Corporate notes
$ 528,960 $ 3,471,040
$ -
$ - $ 528,960 $ 3,471,040
Municipal securities - tax exempt
Municipal securities - taxable
-
-
-
-
523,839
1,329,388
523,839
1,329,388
1,412,437
5,489,750
1,412,437
5,489,750
$ 528,960 $ 3,471,040
$ 1,936,276
$ 6,819,138 $ 2,465,236 $10,290,178
Management evaluates securities for credit losses 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
Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
As of December 31, 2023, 169 of the securities are secured by Federal agency mortgage backed securities (MBS) or U.S.
Treasury obligations and direct obligations of U.S. Government agencies, tax-exempt municipal securities, taxable municipal
securities, Small Business Administration (SBA) securities, 41 of the securities are secured by corporate bonds, private-label
MBS/CMBS, Asset Based Security (ABS), and private-label Collateralized Loan Obligations (CLO). 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 proceeds from sales and calls of securities and the associated gains and losses are listed below.
Proceeds
Gross gains
Gross losses
2023
2022
$ -
$ 2,004,021
-
-
20,503
1,241
24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax provision related to these net realized gains and losses was $0 and $4,032 for the years ended December 31, 2023
and 2022, respectively.
Restricted stock investments consist of the following at December 31:
Federal Reserve Bank stock
Federal Home Loan Bank stock
Community Bankers Bank stock
TOTALS
2023
2022
$ 2,296,800
$ 2,296,800
2,407,100
1,526,400
66,000
66,000
$ 4,769,900
$ 3,889,200
The following table shows a rollforward of the allowance for credit losses on held to maturity securities for the twelve months
ended December 31, 2023:
Balance December 31, 2022
Adjustment for adoption of ASC 326
Provision for credit losses
Balance December 31, 2023
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
Loans, gross
Deferred loan costs/(fees), net
Loans receivable
Allowance for credit losses
Loans, net
CORPORATE NOTES
MUNICIPAL SECURITIES
$ -
$ -
21,120
(7,620)
84,509
(13,575)
$ 13,500
$ 70,934
2023
2022
$ 177,703,039
$ 159,581,315
389,737,990
382,308,395
29,835,917
42,360,588
145,605,624
85,988,119
26,847,526
30,132,305
769,730,096
700,370,722
13,785
(367,714)
769,743,881
700,003,008
(10,519,335)
(7,614,120)
$ 759,224,546
$ 692,388,888
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 Company’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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25
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 Company 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: 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 solar panel loans, car loans, boat loans, loans secured by stock and unsecured
loans. The consumer loans are generally made to borrowers with a minimum credit score of 700 and a maximum debt to
income ratio of 40%.
An analysis of the allowance for credit 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 2023
Allowance for Credit Losses
COMMERCIAL
& INDUSTRIAL
REAL ESTATE -
COMMERCIAL
REAL ESTATE -
CONSTRUCTION
REAL ESTATE -
RESIDENTIAL
CONSUMER
TOTAL
Beginning balance
$ 1,423,213
$ 4,517,637
$ 535,005
$ 692,107
$ 446,158
$ 7,614,120
Impact of Adopting ACS 326
(46,437)
(1,108,788)
529,364
(158,949)
307,178
(477,632)
Charge-offs
Recoveries
Provision
(983,951)
(628,853)
-
-
-
-
-
-
(893,049)
(2,505,853)
-
-
2,208,618
3,080,067
(397,258)
235,466
761,807
5,888,700
Ending Balance
$ 2,601,443
$ 5,860,063
$ 667,111
$ 768,624
$ 622,094
$ 10,519,335
Loans Receivable
Ending Balance
YEAR 2022
Allowance for Loan Losses
$177,703,039
$389,737,990
$ 29,835,917 $145,605,624 $ 26,847,526
$769,730,096
COMMERCIAL
& INDUSTRIAL
REAL ESTATE -
COMMERCIAL
REAL ESTATE -
CONSTRUCTION
REAL ESTATE -
RESIDENTIAL
CONSUMER
TOTAL
Beginning balance
$ 852,510
$ 4,443,641
$ 458,819
$ 390,928
$ 340,222
$ 6,486,120
Charge-offs
Recoveries
Provision
-
-
-
-
-
-
-
-
(189,910)
(189,910)
69,910
69,910
570,703
73,996
76,186
301,179
225,936
1,248,000
Ending Balance
$ 1,423,213
$ 4,517,637
$ 535,005
$ 692,107
$ 446,158
$ 7,614,120
Loans Receivable
Ending Balance
$159,581,315
$382,308,395
$ 42,360,588
$ 85,988,119 $ 30,132,305
$700,370,722
26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An analysis of non-accrual and past due loans is as follows at December 31:
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
YEAR 2023
Commercial and industrial
$ -
$ 964,112 $ 4,387,152 $ 5,351,264 $172,351,775 $177,703,039
$ 4,387,152
Real estate - commercial
3,327,663
272,701
334,596
-
-
-
-
-
5,652,748
8,980,411
380,757,579
389,737,990
5,652,748
-
272,701
29,563,216
29,835,917
-
1,430,032
1,764,628
143,840,996
145,605,624
1,430,032
-
-
26,847,526
26,847,526
-
$ 3,934,960
$ 964,112 $11,469,932 $16,369,004 $753,361,092 $769,730,096
$11,469,932
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
Real estate - construction
Real estate - residential
Consumer
TOTALS
YEAR 2022
Commercial and industrial
$ - $ - $1,282,596
$1,282,596 $158,298,719 $159,581,315
$ 1,282,596
Real estate - commercial
Real estate - construction
-
-
Real estate - residential
668,619
-
Consumer
TOTALS
-
-
-
-
7,355,963
7,355,963
374,952,432
382,308,395
7,355,963
-
-
-
-
42,360,588
42,360,588
668,619
85,319,500
85,988,119
-
30,132,305
30,132,305
-
-
-
$ 668,619 $ - $8,638,559
$9,307,178 $691,063,544 $700,370,722
$ 8,638,559
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality. An
analysis of impaired loans based on loan segment is as follows at December 31, 2022:
RECORDED
INVESTMENT
UNPAID
PRINCIPAL
BALANCE
RELATED
ALLOWANCE
FOR LOAN
LOSSES
AVERAGE
RECORDED
INVESTMENT
INTEREST
INCOME
RECOGNIZED
$ 5,892,514
$ 5,892,514
$ -
$ 6,293,628
$ 317,958
YEAR 2022
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
10,198,142
10,198,142
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Commercial and Industrial
5,892,514
5,892,514
Real Estate - Commercial
Real Estate - Construction
Real Estate - Residential
Consumer
10,198,142
10,198,142
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,343,057
175,403
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,293,628
10,343,057
317,958
175,403
-
-
-
-
-
-
$ 16,090,656
$ 16,090,656
$ -
$ 16,636,685
$ 493,361
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27
The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still
accruing as of December 31, 2023:
YEAR 2023
Commercial and industrial
Real estate - commercial
Real estate - construction
Real estate - residential
Consumer
TOTALS
NONACCRUAL
WITH NO
ALLOWANCE FOR
CREDIT LOSS
NONACCRUAL
WITH ALLOWANCE
FOR CREDIT LOSS
LOANS PAST DUE
OVER 89 DAYS
STILL ACCRUING
$ 1,903,692
$ 2,483,460
$ -
525,000
5,127,748
-
1,430,032
-
-
-
-
-
-
-
-
$ 3,858,724
$ 7,611,208
$ -
The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2023:
YEAR 2023
Commercial and industrial
Real estate - commercial
Real estate - construction
Real estate - residential
Consumer
TOTALS
REAL ESTATE
BUSINESS ASSETS
$ -
$ 2,483,460
5,127,748
-
-
-
-
-
-
-
$ 5,127,748
$ 2,483,460
Cash basis income recognized approximates interest income recognized as of December 31, 2023 and 2022. No additional
funds are committed to be advanced in connection with the impaired loans.
CREDIT QUALITY INDICATORS
One of the most significant factors in assessing the Company’s loan portfolio is the risk rating. The Company 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 Company’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.
28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An analysis of the credit quality indicators is as follows at December 31:
YEAR 2023
PASS
SPECIAL MENTION SUBSTANDARD DOUBTFUL
LOSS
TOTAL
Commercial and industrial $147,933,646
$ 9,819,953
$18,052,513 $1,896,927 $ -
$177,703,039
Real estate - commercial
361,557,312
17,084,776
5,968,154
5,127,748
Real estate - construction
27,975,781
1,860,136
-
Real estate - residential
144,175,592
26,847,526
-
-
1,430,032
-
-
-
-
-
-
-
-
389,737,990
29,835,917
145,605,624
26,847,526
$708,489,857
$28,764,865
$25,450,699 $7,024,675 $ -
$769,730,096
PASS
SPECIAL MENTION SUBSTANDARD DOUBTFUL
LOSS
TOTAL
Consumer
TOTALS
YEAR 2022
Commercial and industrial $137,818,670
$ 15,870,131
$ 5,892,514 $ - $ -
$159,581,315
Real estate - commercial
361,537,398
10,572,855
10,198,142
Real estate - construction
39,939,820
2,420,768
Real estate - residential
Consumer
TOTALS
85,988,119
30,132,305
-
-
-
-
-
-
-
-
-
-
-
-
-
382,308,395
42,360,588
85,988,119
30,132,305
$655,416,312
$ 28,863,754
$ 16,090,656 $ - $ -
$700,370,722
Term Loan Amortized Cost Basis by Origination Year:
AS OF DECEMBER 2023
Commercial and industrial
Risk Rating
Pass
Special Mention
Substandard
Doubtful
Loss
TOTALS
2023
2022
2021
PRIOR
TOTAL
$62,902,476
$38,971,700
$11,253,007
$34,806,463
$147,933,646
-
-
-
-
2,698,365
4,607,254
2,514,334
9,819,953
1,409,997
4,662,660
11,979,856
18,052,513
1,896,927
-
-
-
-
-
1,896,927
-
$62,902,476
$44,976,989
$20,522,921
$49,300,653
$177,703,039
Current Period gross write offs
$ -
$ -
$ -
$ 983,951
$ 983,951
AS OF DECEMBER 2023
Real Estate - commercial
Risk Rating
Pass
Special Mention
Substandard
Doubtful
Loss
TOTALS
2023
2022
2021
PRIOR
TOTAL
$ 23,746,053
$ 57,000,675
$ 78,138,200
$202,672,384
$361,557,312
-
-
-
-
5,417,198
473,494
11,194,084
17,084,776
2,332,490
360,880
3,274,784
5,968,154
-
-
-
-
5,127,748
5,127,748
-
-
$ 23,746,053
$ 64,750,363
$ 78,972,574
$222,269,000
$389,737,990
Current Period gross write offs
$ -
$ -
$ -
$ 628,853
$ 628,853
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
29
AS OF DECEMBER 2023
Real Estate - construction
Risk Rating
Pass
Special Mention
Substandard
Doubtful
Loss
TOTALS
2023
2022
2021
PRIOR
TOTAL
$ 1,335,851
$ 6,844,611
$ 17,760,383
$ 2,034,936
$ 27,975,781
-
-
-
-
1,860,136
-
-
-
-
-
-
-
-
-
-
-
1,860,136
-
-
-
$ 1,335,851
$ 8,704,747
$ 17,760,383
$ 2,034,936
$ 29,835,917
Current Period gross write offs
$ -
$ -
$ -
$ -
$ -
AS OF DECEMBER 2023
Real Estate - residential
Risk Rating
Pass
Special Mention
Substandard
Doubtful
Loss
TOTALS
2023
2022
2021
PRIOR
TOTAL
$ 63,654,602
$ 39,455,300
$ 12,324,800
$ 28,740,891
$144,175,593
-
-
1,302,801
127,231
-
-
-
-
-
-
-
-
-
-
-
-
-
1,430,032
-
-
$ 64,957,403
$ 39,582,531
$ 12,324,800
$ 28,740,891
$145,605,625
Current Period gross write offs
$ -
$ -
$ -
$ -
$ -
AS OF DECEMBER 2023
2023
2022
2021
PRIOR
TOTAL
Consumer
Risk Rating
Pass
Special Mention
Substandard
Doubtful
Loss
TOTALS
$ 952,759
$ 360,215
$ 18,568,047
$ 6,966,505
$ 26,847,526
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$ 952,759
$ 360,215
$ 18,568,047
$ 6,966,505
$ 26,847,526
Current Period gross write offs
$ -
$ -
$ -
$ 893,049
$ 893,049
30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness or term extension.
When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.
As of December 31, 2023 and 2022, the Company did not modify loans in this manner.
PAYCHECK PROTECTION PROGRAM
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 Paycheck 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 Company participated in the PPP loan program, processed and funded 512 loans with original
balances of $109.60 million in the second and third quarter of 2020. As of December 31, 2023, and 2022 there were 21 and 178
PPP loans with an outstanding balance of $0.26 million and $5.83 million, respectively. These loans have $8,265 and $158,966
in remaining net unearned fees for the years then ended. These loans are included with commercial and industrial loans and
have no allowance for credit loss reserve recorded as they all carry a full faith and guarantee by the SBA.
OTHER MATTERS
Loans to principal officers, directors, and their affiliates were $8,822,736 and $6,717,583 on December 31, 2023 and 2022,
respectively. New loans made to such related parties amounted to $2,966,415, and repayments amounted to $196,218 in
2023. Loans paid off during the year ended December 31, 2023 were $676,338 which had an outstanding balance as of
December 31, 2022.
5. Premises and Equipment
Premises and equipment include the following as of December 31:
Furniture and equipment
Leasehold improvements
Software
Total Cost
Less accumulated depreciation
2023
2022
$ 1,533,495
$ 1,522,155
1,502,983
1,468,327
181,211
181,211
3,217,689
3,171,693
(2,338,732)
(2,194,300)
NET BANK PREMISES AND EQUIPMENT
$ 878,957
$ 977,393
Depreciation and amortization of Company premises and equipment charged to expense amounted to $144,432 and
$165,988 in 2023 and 2022, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
31
6. Other Assets
Other Assets include the following as of December 31:
Investment in limited partnership - Small Business Investment Company
2023
$ 5,116,803
2022
$ 3,495,674
Investment in limited partnership - Low Income Housing Investment Fund
3,906,469
4,341,562
Accounts receivable
Interest rate lock commitment
Prepaid expenses
Fair value of derivative instruments
Other assets
TOTAL
623,055
87,551
1,394,342
799,470
49,351
967,851
5,238,826
6,065,011
1,063,773
765,889
$17,430,819
$ 16,484,808
The Company has committed $5.0 million to three separate investments in a Small Business Investment Company. The
Company has elected to account for these investments under the equity method; therefore, the change in equity of the
Company’s investment is recorded quarterly to the Statement of Operations. The Company has recognized a liability, in other
liabilities, representing the unfunded portion of the partnership commitment. As of December 31, 2023, the outstanding
commitment was $2,606,827. During the years ended December 31, 2023 and December 31, 2022, the Company had
received and paid capital calls of $1,265,649 and $393,503 respectively.
The Company committed $5.0 million to a Low Income Housing Tax Credit (“LIHTC”) investments. The partnerships were
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 Company’s financial investment in these limited partnerships 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 Company has recognized a liability, in other liabilities, representing the unfunded portion of the partnership
commitment which was $1,482,510 as of December 31, 2023. During the years ended December 31, 2023 and December 31,
2022, the Company had received and paid capital calls of $1,070,547 and $1,216,675, respectively.
7. Deposits
The following are time deposits maturing in years ending December 31:
2024
2025
2026
2027
2028
THEREAFTER
TOTAL
$ 93,068,701
68,228,847
25,110,932
7,627,805
56,734,338
2,871,237
$ 253,641,860
Time deposits in denominations that meet or exceed the FDIC minimum limit of $250,000 or more totaled $45,804,515 and
$46,752,857 as of December 31, 2023 and 2022, respectively.
The Company held related party deposits of $10,370,982 and $13,520,936 as of December 31, 2023 and 2022, respectively.
8. Borrowings and Advances
The Company’s borrowings from the Federal Home Loan Bank of Atlanta (FHLB) were $35.0 million and $25.0 million on
December 31, 2023 and 2022, respectively. On December 31, 2023 and 2022, the weighted average rates on FHLB advances
were 4.87% and 3.01%, respectively. These advances were secured by a blanket collateral agreement with the FHLB pledging
the Company’s portfolio of residential first mortgage loans with a collateral value of $116.7 million and $147.6 million,
respectively.
32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FHLB advances are subject to prepayment penalties. During the year ended December 31, 2023 and 2022, the Company
prepaid no FHLB advances.
Callable advances are callable at the option of the FHLB. If an advance is called, the Company has the option to pay off the
advance without penalty or re-borrow funds on different terms. The Company had $20.0 million in callable FHLB advances for
both December 31, 2023 and 2022.
The Company’s borrowings from the Federal Reserve Board (FRB) were $15.0 million and $0 million as of December 31, 2023
and 2022, respectively. On December 31, 2023, the weighted average rates on FRB advances were 4.88%. These advances
were secured by a blanket collateral agreement with the FRB pledging the Company’s portfolio of residential first mortgage
loans with a collateral value of $52.1 million.
Advances from the FHLB and FRB are summarized by year of maturity and weighted average interest rate at December 31,
2023:
2024
2025
2026
2027
2028
THEREAFTER
TOTAL
AMOUNT
WEIGHTED
AVERAGE RATE
$ 30,000,000
-
20,000,000
-
-
-
$ 50,000,000
5.23%
N/A
4.33%
N/A
N/A
N/A
The Company has utilized the Federal Reserve Board’s (“FRB”) Paycheck Protection Program Liquidity Facility (“PPPLF”) to
provide match funding for Paycheck Protection Program (“PPP”) loan origination. PPPLF advances do not have specified
maturity dates; rather, they are required to be paid off at the time of the underlying PPP loan payoff. The Company’s
borrowings under the PPPLF were $0.27 million and $5.83 million on December 31, 2023 and 2022, respectively. The
weighted average rate on PPPLF advances was 0.35% as of December 31, 2023 and 2022.
9. Subordinated Notes
On November 8, 2021, the Company completed the issuance of $20.0 million in aggregate principal amount of fixed-to-
floating rate subordinated notes in a private placement transaction to various accredited investors. The net proceeds of the
offering are intended to support growth and be used for other general business purposes. The notes have a maturity date of
December 1, 2031 and have an annual fixed interest rate of 3.50% until December 1, 2026. Thereafter, the notes will have a
floating interest rate indexed to the Secured Overnight Financing Rate (“SOFR”) (computed on the basis of a 360-day year of
twelve 30-day months) from and including December 1, 2026 to the maturity date or any early redemption date. Interest will
be paid semi-annually, in arrears, on June 1 and December 1 of each year during the time that the notes remain outstanding
through the fixed interest rate period or earlier redemption date. Interest is to be paid quarterly, on March 1, June 1,
September 1, and December 1 of each year, during the time in which the interest rate is floating. The balance of subordinated
notes, net of issuance costs, is categorized as Subordinated Debt on the balance sheet and was $19,752,719 and $19,674,794
for on December 31, 2023 and 2022.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
33
10. 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 (ACH) transactions pending
Accounts payable
Fair value of derivative instruments
Other liabilities
TOTAL
11. Income Taxes
Year-end deferred tax assets and liabilities were due to the following:
Deferred Tax Assets
Allowance for credit losses
Unearned loan fees and costs, net
Accrued compensation
Non-accrual loan interest
Unrealized losses on securities
Restricted stock
Lease liability
Other
Deferred Tax Liabilities
Depreciation
Unearned loan fees and costs, net
Unrealized gains on cash flow hedges
Right-of-use asset
Interest rate lock
Other
NET DEFERRED TAX ASSET
2023
2022
$ 2,606,827
$ 2,369,779
1,482,510
2,553,057
1,791,997
2,023,945
1,404,609
82,546
375,134
100,619
3,789,983
3,685,744
342,747
1,952,547
$ 11,501,219
$ 13,060,825
2023
2022
$ 2,331,454
$ 1,694,062
-
247,239
-
46,633
317,100
-
5,466,521
5,514,100
126,400
426,796
21,866
79,349
391,182
6,605
8,620,276
8,049,031
147,991
177,022
4,887
323,452
440,406
19,404
50,296
-
499,646
363,586
10,037
1,511
986,436
1,051,802
$ 7,633,840
$ 6,997,229
34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income tax expense was the following as of December 31:
Current tax expense
Federal
State
Deferred tax expense (benefit)
Federal
State
2023
2022
$ 275,373
$ 2,691,951
51,926
177,948
(440,136)
(162,056)
(33,456)
(18,255)
$ (146,293)
$ 2,689,588
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
Unrecognized tax benefits, net
Stock compensation
Low-income housing investment benefit
Other
2023
$456,204
2022
$ 2,783,163
14,591
(40,607)
(190,458)
-
(17,204)
(117,038)
(251,781)
126,157
(100,299)
(140,510)
(31,017)
(111,036)
(100,272)
263,402
$(146,293)
$ 2,689,588
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 to prior tax positions
Increases related to current tax positions
Settlements
Lapse of statute
Balance, end of year
2023
$ -
2022
$ 36,036
-
-
-
-
-
-
-
-
-
(36,036)
$ -
$ -
The Company'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 Company is subject to income tax by federal and state taxing authorities in which the Company does business in. The
Company is subject to examination for the tax periods ending after December 31, 2019.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
35
12. 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 Company’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, 2023, 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.
The Bank and Holding Company’s actual capital amounts and ratios as of December 31, 2023 and 2022 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, 2023
Total capital (to risk-weighted assets)
Freedom Financial Holdings, Inc.
$124,262,404
13.83% $ 94,370,288
10.50%
N/A
N/A
The Freedom Bank of Virginia
$124,215,634
13.82% $ 94,370,288
10.50% $ 89,876,465
10.00%
Tier 1 capital (to risk-weighted assets)
Freedom Financial Holdings, Inc.
$ 94,943,069
10.56% $ 76,394,995
8.50%
N/A
N/A
The Freedom Bank of Virginia
$113,696,299
12.65% $ 76,394,995
8.50% $ 71,901,172
8.00%
Common Equity Tier 1 (to risk-weighted assets)
Freedom Financial Holdings, Inc.
$ 94,943,069
10.56% $ 62,913,526
7.00%
N/A
N/A
The Freedom Bank of Virginia
$113,696,299
12.65% $ 62,913,526
7.00% $ 58,419,702
6.50%
Tier 1 capital (to adjusted average assets)
Freedom Financial Holdings, Inc.
$ 94,943,069
8.56% $ 44,342,383
4.00%
N/A
N/A
The Freedom Bank of Virginia
$113,696,299
10.26% $ 44,329,221
4.00% $ 55,411,526
5.00%
36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACTUAL
FOR CAPITAL
ADEQUACY PURPOSES
MINIMUM TO BE WELL
CAPITALIZED UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
AMOUNT
RATIO
AMOUNT
RATIO
AMOUNT
RATIO
DEC. 31, 2022
Total capital (to risk-weighted assets)
Freedom Financial Holdings, Inc.
$118,841,244
14.27% $ 87,414,157
10.50%
N/A
N/A
The Freedom Bank of Virginia
$118,916,163
14.28% $ 87,414,157
10.50% $ 83,251,579
10.00%
Tier 1 capital (to risk-weighted assets)
Freedom Financial Holdings, Inc.
$ 92,427,124
11.10% $ 70,763,842
8.50%
N/A
N/A
The Freedom Bank of Virginia
$111,302,044
13.37% $ 70,763,842
8.50% $ 66,601,263
8.00%
Common Equity Tier 1 (to risk-weighted assets)
Freedom Financial Holdings, Inc.
$ 92,427,124
11.10% $ 58,276,105
7.00%
N/A
N/A
The Freedom Bank of Virginia
$111,302,044
13.37% $ 58,276,105
7.00% $ 54,113,526
6.50%
Tier 1 capital (to adjusted average assets)
Freedom Financial Holdings, Inc.
$ 92,427,124
9.40% $ 39,325,794
4.00%
N/A
N/A
The Freedom Bank of Virginia
$111,302,044
11.32% $ 39,314,558
4.00% $ 49,143,198
5.00%
The Company’s principal source of funds for dividend payments is dividends received from the Bank. Banking regulations
limit the amount of dividends that may be paid without prior approval of regulatory agencies. As of December 31, 2023,
$23,610,228 of retained earnings is available to pay dividends.
13. Derivatives
The Company 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 $50 million as of December 31, 2023 and 2022,
were designated as cash flow hedges on certain brokered deposits and were determined to be effective during all periods
presented. The Company expects the hedges to remain effective during the remaining terms of the swaps.
Fair Value Hedges: Interest rate swaps with notional amounts totaling $30 million and $0 million as of December 31, 2023
and 2022, were designated as fair value portfolio layer hedges of certain fixed rate loans. The hedges were determined to
remain effective during the remaining terms of the swaps.
Derivatives Not Designated As Hedges: The Company 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, 2023 and 2022 were $24,417,499 and
$25,189,189, respectively. The Company 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, 2023.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
37
LINE ITEM IN THE
BALANCE SHEET IN WHICH THE
HEDGED ITEM IS INCLUDED
CARRYING AMOUNT
OF THE HEDGED ASSETS/
(LIABILITIES)
CUMULATIVE AMOUNT OF
FAIR VALUE HEDGING
ADJUSTMENT INCLUDED IN THE
CARRYING AMOUNT OF THE
HEDGED ASSET/(LIABILITY)
2023
2022
2023
2022
Loans Receivable(a)
Brokered Deposits
$ 30,000,000 $ -
$ -
$ -
$ (40,000,000) $ (40,000,000)
$ -
$ -
Brokered Time Deposits
$ (10,000,000) $ (10,000,000)
$ -
$ -
(a) These amounts represent the amortized cost basis of closed portfolios used to designate hedging relationships in which
the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated
hedge period. At December 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was
$58,582,606.
Interest income from the fair value hedge was netted against interest expense thus reducing interest expense by $79,933 and
$0 for the years 2023 and 2022 respectively.
The Company presents the net derivative position on the balance sheet in other assets/liabilities. The following table reflects
the derivatives recorded on the balance sheet as of December 31:
For the years ended December 31, 2023 and 2022 there was no gain or loss recognized in income on cash flow hedging
relationships.
14. Stock Option & Equity Plan
In 2007, the Company 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 Company 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, 2023:
2007 Plan
1,075,280
961,296
341,866
AUTHORIZED
GRANTED
VESTED/
CANCELLED/
FORFEITED
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. As of December 31, 2023 and 2022, there was no remaining amortization expense to
be recognized on outstanding stock options.
There were no options exercised in 2023. The intrinsic value of options exercised during 2022 was $382,835. The weighted
average remaining contractual life of options outstanding was 1.64 and 2.64 years for the years ended December 31, 2023
and 2022, respectively. As of December 31, 2023 all outstanding options are fully vested. The intrinsic value of these fully
vested options on December 31, 2023 was $68,809.
Included in other assets:
Derivatives designated as hedges:
2023
2022
The following summarizes the option activity under the Plan:
NOTIONAL
AMOUNT
FAIR
VALUE
NOTIONAL
AMOUNT
FAIR
VALUE
BALANCE AT JANUARY 1, 2022
Interest rate swaps related to loans receivable
$30,000,000
$ 11,278 $ - $ -
Interest rate swaps related to brokered deposits
$40,000,000
$ 888,868 $40,000,000 $ 1,486,587
Interest rate swaps related to brokered time deposits
$10,000,000
$ 548,697 $10,000,000 $ 892,680
$80,000,000
$1,448,843 $50,000,000 $ 2,379,267
BALANCE AT DECEMBER 31, 2022
32,446
$ 8.30
The effect of cash flow hedge accounting on accumulated other comprehensive income, net of taxes, for the years ended
December 31 are as follows, net of taxes:
2023
AMOUNT OF GAIN
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
$ 1,114,112
N/A
2022
$ -
AMOUNT OF GAIN
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
$ 1,879,621
N/A
$ -
38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Grants
Exercised
Expired
Forfeited
Grants
Exercised
Expired
Forfeited
NUMBER OF
SHARES
WEIGHTED
AVERAGE
EXERCISE PRICE
78,185
$ 7.07
(45,739)
6.20
-
-
-
-
-
-
-
-
-
-
-
-
-
-
BALANCE AT DECEMBER 31, 2023
32,446
$ 8.30
There were no stock options granted during the years ended December 31, 2023 and 2022.
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 Company 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 Company. 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.
For the years ended December 31, 2023 and 2022 there was no gain or loss recognized in income on cash flow hedging
relationships.
14. Stock Option & Equity Plan
In 2007, the Company 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 Company 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, 2023:
2007 Plan
1,075,280
961,296
341,866
AUTHORIZED
GRANTED
VESTED/
CANCELLED/
FORFEITED
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. As of December 31, 2023 and 2022, there was no remaining amortization expense to
be recognized on outstanding stock options.
There were no options exercised in 2023. The intrinsic value of options exercised during 2022 was $382,835. The weighted
average remaining contractual life of options outstanding was 1.64 and 2.64 years for the years ended December 31, 2023
and 2022, respectively. As of December 31, 2023 all outstanding options are fully vested. The intrinsic value of these fully
vested options on December 31, 2023 was $68,809.
The following summarizes the option activity under the Plan:
BALANCE AT JANUARY 1, 2022
Grants
Exercised
Expired
Forfeited
NUMBER OF
SHARES
78,185
-
(45,739)
-
-
WEIGHTED
AVERAGE
EXERCISE PRICE
$ 7.07
-
6.20
-
-
BALANCE AT DECEMBER 31, 2022
32,446
$ 8.30
Grants
Exercised
Expired
Forfeited
-
-
-
-
-
-
-
-
BALANCE AT DECEMBER 31, 2023
32,446
$ 8.30
There were no stock options granted during the years ended December 31, 2023 and 2022.
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 Company 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 Company. 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
39
AMOUNT OF GAIN
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
$ 1,114,112
$ -
Interest rate contracts
$ 1,879,621
AMOUNT OF GAIN
RECOGNIZED IN OCI ON
DERIVATIVE
LOCATION OF GAIN
(LOSS) RECLASSIFIED
FROM OCI INTO
INCOME
N/A
AMOUNT OF GAIN
(LOSS) RECLASSIFIED
FROM OCI INTO
INCOME
$ -
2023
N/A
2022
During the year ended December 31, 2023, 71,352 voting common shares of restricted stock were granted to Company
employees as part of a time-based restricted stock agreement with a weighted fair value of $14.67 at the date of grant. These
restricted shares cliff vest over a three year period based on their date of grant.
At December 31, 2023, there was $665,940 in unrecognized compensation expense related to non-vested restricted stock
awards that are expected to be recognized over a weighted average period of 3.01 years. At December 31, 2022, there was
$490,331 in unrecognized compensation expense related to non-vested restricted stock awards.
The following summarizes the restricted stock activity under the Plan:
BALANCE AT JANUARY 1, 2022
Grants
Vested
Expired
Forfeited
BALANCE AT DECEMBER 31, 2022
Grants
Vested
Expired
Forfeited
BALANCE AT DECEMBER 31, 2023
NUMBER OF
SHARES
WEIGHTED
AVERAGE
FAIR VALUE
86,788
42,100
(55,819)
10.85
13.97
11.20
-
-
(1,000)
72,069
71,352
(48,760)
14.03
12.36
14.67
12.79
-
-
(5,668)
88,993
14.07
$13.86
For the years ended December 31, 2023 and 2022, the Company recognized $791,304 and $632,514 in stock-based
compensation expense, respectively.
15. Operating Leases
The Company enters into leases in the normal course of business primarily for operations facilities, branch locations, and SBA/
mortgage operations facilities. The Company’s leases have remaining terms ranging from two months to ninety-eight months,
some of which include renewal options to extend the lease for up to ten years.
The Company includes lease extensions if, after considering relevant economic factors, it is reasonably certain the Company
will exercise the option. The Company has elected not to recognize leases with original lease terms of twelve months or less
(short-term leases) on the Company’s balance sheet.
Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and
short-term leases is recognized on a straight-line basis over the lease term. Right-of-use assets represent our right to use an
underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.
Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value
of lease payments over the lease term.
The Company uses its incremental borrowing rate at lease commencement to calculate the present value of lease payments
when the rate implicit in a lease is not known. The Company’s incremental borrowing rate is based on the FHLB amortizing
advance rate, adjusted for the lease term and other factors.
Right-of-use assets and lease liabilities by lease type, and the associated balance sheet classifications are as follows:
BALANCE SHEET
CLASSIFICATION
DEC. 31, 2023
DEC. 31, 2022
Right-of-use assets: Operating leases
Right-of-use asset
$ 1,987,075
$ 1,736,285
Lease liabilities: Operating leases
Lease liability
$ 1,925,672
$ 1,862,773
40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lease Expense
The components of total lease cost were as follows for the period ending:
Operating lease cost
Lease Obligations
DECEMBER 31, 2023
DECEMBER 31, 2022
$ 712,873
$ 1,024,653
Future undiscounted lease payments for operating leases with initial terms of one year or more as of December 31, 2023 are
as follows:
2024
2025
2026
2027
2028
THEREAFTER
Total undiscounted lease payments
Less: imputed interest
Net lease liabilities
OPERATING LEASE
$ 440,851
411,511
223,409
229,364
211,101
672,954
2,189,190
263,518
$ 1,925,672
Supplemental Lease Information
Operating lease weighted average remaining lease term (years)
Operating lease weighted average discount rate
5.85
1.15%
3.68
2.18%
DECEMBER 31, 2023
DECEMBER 31, 2022
16. 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 fair value measurement level of the asset or liability’s fair value measurement level within the fair value hierarchy is based
on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize
the use of observable inputs and minimize the use of unobservable inputs.
The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities
recorded at fair value on a recurring basis in the financial statements:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
41
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 Company 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 Company’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.
LOAN SERVICING RIGHTS:
On a quarterly basis, loan servicing rights are evaluated for impairment based upon the fair value of the rights as
compared to carrying amount. If the carrying amount of an exceeds fair value, impairment is recorded on the servicing
asset and it is carried at fair value. Fair value is determined based on a valuation model that calculates the present value
of estimated future net servicing income. The valuation model utilizes interest rate, prepayment speed, and default rate
assumptions that market participants would use in estimating future net servicing income and that can be validated
against available market data (Level 2).
The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of
December 31:
QUOTED PRICES IN
ACTIVE MARKETS FOR
IDENTICAL ASSETS
(LEVEL 1)
SIGNIFICANT OTHER
OBSERVABLE INPUTS
(LEVEL 2)
SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)
FAIR VALUE
2023
Available-for-sale securities
$211,263,518
$ -
$210,763,518
$ 500,000
Interest rate lock commitment
Cash flow derivatives
Fair value derivatives
Servicing rights asset
2022
87,551
1,437,565
11,278
196,317
-
-
-
-
-
87,551
1,437,565
11,278
196,317
-
-
-
$212,996,229
$ -
$212,408,678
$ 587,551
Available-for-sale securities
$181,558,037
$ -
$181,058,037
$ 500,000
Interest rate lock commitment
Cash flow derivatives
Servicing rights asset
49,351
2,379,267
255,813
-
-
-
-
49,351
2,379,267
255,813
-
-
$184,242,468
$ -
$183,693,117
$ 549,351
42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table represents recurring level III assets:
BALANCE AT JANUARY 1, 2022
Realized and unrealized gains included in earnings
Purchase of securities
Sales, maturities, calls, and paydowns of securities
Transfer to (from) level III assets
Unrealized gain/(loss) included in other comprehensive income
Unrealized gain/(loss) not included in other comprehensive income
BALANCE AT DECEMBER 31, 2022
Realized and unrealized gains included in earnings
Purchase of securities
Sales, maturities, calls, and paydowns of securities
Transfer to (from) 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
COMMITMENT
$ -
$ 183,807
-
-
-
500,000
-
-
(134,456)
-
-
-
-
-
$ 500,000
$ 49,351
-
-
-
-
-
-
38,200
-
-
-
-
-
BALANCE AT DECEMBER 31, 2023
$ 500,000
$ 87,551
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 Company to measure certain financial assets recorded at fair value
on a nonrecurring basis in the financial statements:
INDIVIDUALLY EVALUATED LOANS:
The fair value of impaired loans with specific allocations of the allowance for credit 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.
Assets that were measured at fair value on a nonrecurring basis are summarized below:
QUOTED PRICES IN
ACTIVE MARKETS FOR
IDENTICAL ASSETS
(LEVEL 1)
SIGNIFICANT OTHER
OBSERVABLE INPUTS
(LEVEL 2)
SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)
FAIR VALUE
2023
Individually evaluated loans
Commercial and industrial
Real estate - commercial
$ 1,525,525
$ 2,500,000
-
-
-
-
$ 1,525,525
$ 2,500,000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
43
The following table presents quantitative information about level 3 fair value measurements for assets measured at fair value
on a non-recurring basis as of December 31, 2023:
LEVEL 3 INSTRUMENTS ONLY
FAIR VALUE
VALUATION TECHNIQUES
INPUTS
Loans - Commercial and Industrial
$ 1,525,525
Market Approach
Loans - Real estate - Commercial
$ 2,500,000 Consensus asset sale
Adjustment for
differences between
comparable sales
Adjustment for
differences between
comparable
estate sales
RANGE (WEIGHTED-
AVERAGE)
10%-50% (25%)
6%-10% (8%)
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
Company. Additionally, in accordance with ASU 2016-01, which the Bank adopted on January 1, 2018 on a prospective
basis, the Company 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, 2023 USING
CARRYING
AMOUNT
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
Financial assets
Cash and due from banks
$ 2,442,050
$ 2,442,050 $ -
$ -
$ 2,442,050
Interest bearing deposits with banks
21,806,078
21,806,078
-
-
21,806,078
Securities available-for-sale
Securities held-to-maturity
Loans held for sale
Loans receivable, net
211,263,518
20,114,269
6,663,929
759,224,546
-
-
-
-
Accrued interest receivable
3,721,730
3,721,730
Interest rate lock commitment
Cash flow derivative
Fair value derivative
87,551
11,278
1,437,565
-
-
-
210,763,518
500,000
211,263,518
17,611,533
6,751,480
-
-
17,611,533
6,751,480
-
-
-
11,278
1,437,565
757,572,000
757,572,000
-
3,721,730
87,551
-
-
87,551
11,278
1,437,565
TOTAL FINANCIAL ASSETS
$1,026,772,514
$27,969,858 $236,575,374 $758,159,551 $1,022,704,783
Financial liabilities
Demand deposits
Time deposits
Borrowings
PPP liquidity facility advances
Subordinated debt, net of
issuance costs
Accrued interest payable
$667,416,278
$667,416,278 $ -
$ -
$667,416,278
253,641,860
50,000,000
270,576
19,752,719
-
-
-
-
256,759,000
49,753,172
270,576
16,231,007
2,842,646
2,842,646
-
-
-
-
-
-
256,759,000
49,753,172
270,576
16,231,007
2,842,646
TOTAL FINANCIAL LIABILITIES $993,924,079
$670,258,924 $323,013,755
$ -
$993,272,679
44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2022 USING
CARRYING
AMOUNT
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
Financial assets
Cash and due from banks
$ 2,099,062
$ 2,099,062
$ -
$ -
$ 2,099,062
Interest bearing deposits with banks
32,674,953
32,674,953
-
-
32,674,953
Securities available-for-sale
Securities held-to-maturity
Loans held for sale
Loans receivable, net
181,558,037
17,096,010
5,064,385
692,388,888
-
-
-
-
Accrued interest receivable
3,784,076
3,784,076
Interest rate lock commitment
Cash flow derivative
49,351
2,412,791
-
-
181,058,037
500,000
181,558,037
14,634,802
5,113,736
-
-
14,634,802
5,064,385
-
-
-
679,991,000
679,991,000
-
3,784,076
49,351
49,351
2,412,791
-
2,412,791
TOTAL FINANCIAL ASSETS
$937,127,553
$ 38,558,091 $203,219,366 $680,540,351
$922,268,457
Financial liabilities
Demand deposits
Time deposits
Federal Home Loan Bank advances
25,000,000
PPP liquidity facility advances
5,826,298
Subordinated debt, net of
issuance costs
Accrued interest payable
Cash flow derivative
$603,155,028
$603,155,028 $ -
$ -
$603,155,028
245,840,048
19,674,794
-
-
-
-
243,030,000
24,789,279
5,826,298
16,843,994
1,265,796
1,265,796
-
33,522
-
33,522
-
-
-
-
-
-
243,030,000
24,789,279
5,826,298
16,843,994
1,265,796
33,522
TOTAL FINANCIAL LIABILITIES $900,795,486
$604,420,824 $290,523,093
$ -
$894,943,917
17. Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company 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 Company’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 Company 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
2023
2022
$ 139,340,178
$ 172,528,409
$ 4,796,487
$ 2,606,292
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 Company evaluates each customer’s creditworthiness
on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company 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 Company 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 Company’s policy for obtaining collateral, and the nature of such collateral, is essentially the same
as that involved in making commitments to extend credit.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
45
18. Deferred Benefits
The Company 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. The Company also offers 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
$306,755 and $323,417 for the years ended December 31, 2023 and 2022, respectively.
The Company 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.
19. 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
GAINS (LOSSES) ON
CASH FLOW
DERIVATIVES
ACCUMULATED
OTHER COMPREHEN-
SIVE (LOSS)
BALANCE AT JANUARY 1, 2022
Unrealized gains net of tax of 5,562,335
Reclassification for gains on sales net of tax of $4,045
$181,450
$469,822
$651,272
(19,159,239)
(15,217)
-
-
(19,159,239)
(15,217)
Unrealized gain on cash flow derivative, net of tax of ($374,758)
-
1,409,797
1,409,797
BALANCE AT DECEMBER 31, 2022
$ (18,993,006)
$ 1,879,619
$ (17,113,387)
Unrealized losses net of tax of ($47,579)
Reclassification for gains on sales net of tax
Unrealized gain on cash flow derivative, net of tax of ($176,194)
163,881
-
-
-
-
163,881
-
(765,509)
(765,509)
BALANCE AT DECEMBER 31, 2023
$ (18,829,125)
$ 1,114,110
$ (17,715,015)
The following is changes in significant amounts reclassified out of each component of accumulated other comprehensive income for
the year ended December 31:
Details about Accumulated Other
Comprehensive Income Components
Amount Reclassified From
Accumulated Other
Comprehensive Income
Affected Line Item in the Statement
Where Net Income is Presented
2023
Unrealized gains and losses on available-for-sale securities
Realized gains on securities available-for-sale
Credit loss expense
Total before tax
Tax effect
Net of Tax
2022
-
-
-
-
$ -
Gain on Sale of Investment Securities
N/A
Income Tax Expense
Unrealized gains and losses on available-for-sale securities
Realized gains on securities available-for-sale
$ 19,262
Gain on Sale of Investment Securities
Other-than-temporary Impairment
-
N/A
Total before tax
Tax effect
Net of Tax
19,262
(4,045)
$ 15,217
Income Tax Expense
46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. Related Party Transactions
For the years ended December 31, 2023 and 2022, the Company used a brokerage firm, at which one of the Company’s
directors is a principal. This brokerage firm offers benefits such as payroll services and health and dental insurance for
employees of the Company. The brokerage firm receives commission payments directly from the benefit providers. Company-
paid fees amounted to $0 and $350 for the years ended December 31, 2023 and 2022.
21. Parent Company Condensed Financial Information
BALANCE SHEETS
As of December 31
ASSETS
Cash
Investment in Bank Subsidiary
Other Assets
TOTAL ASSETS
LIABILITIES
Subordinated Debt (net of issuance costs)
Other Liabilities
Total Stockholders' Equity
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
STATEMENT OF OPERATIONS
Years Ended December 31
Interest Income
Total Interest Income
Interest Expense
Total Interest Expense
Total Interest Income (Loss)
Non-Interest Income
Total Non-interest Income
Non-Interest Expenses
Income (loss) before income tax and undistributed net income of
bank subsidiary
Income tax benefit
Income (loss) before undistributed net income of bank subsidiary
Equity in undistributed net income of bank subsidiary
NET INCOME
2023
2022
$ 65,035
$ 693,228
96,177,602
94,076,862
878,409
448,740
$ 97,121,046
$ 95,218,830
$ 19,752,719
$ 19,674,794
140,273
597,907
77,228,054
74,946,129
$ 97,121,046
$ 95,218,830
2023
$ -
2022
$ -
-
777,925
777,925
-
701,943
701,943
(777,925)
(701,943)
-
-
-
-
1,117,721
994,859
(1,895,646)
(1,696,802)
398,086
356,328
(1,497,560)
(1,340,474)
3,816,256
11,904,046
$ 2,318,696
$ 10,563,572
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
47
STATEMENTS OF CASH FLOWS
Years Ended December 31
OPERATING ACTIVITIES
Net income
Equity in undistributed net income of bank subsidiary
Adjustments to reconcile net income to net cash provided by
Operating Activities
Share-Based Compensation
Decrease/(increase) in:
Intercompany Receivable
Income Tax Receivable
Other Assets
Increase (decrease) in:
Intercompany Payable
Accrued Interest Payable
Other Liabilities
2023
2022
$ 2,318,696
$ 10,563,572
(3,816,256)
(11,904,046)
77,925
791,304
57,925
536,564
-
223,692
(398,086)
(356,328)
(31,581)
(706)
(483,586)
(504,924)
-
25,951
(23,335)
9,781
Net Cash Provided by Operating Activities
$ (1,515,633)
$ (1,397,805)
INVESTING ACTIVITIES
Investment in Subsidiaries
Net Cash Used in Investing Activities
FINANCING ACTIVITIES
Proceeds from Subordinated Debt, Net of Issuance Costs
Proceeds from Stock Options
Repurchase of Common Stock
Net cash Provided by Financing Activities
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
22. Subsequent Events
1,600,000
1,000,000
$ 1,600,000
$ 1,000,000
-
-
-
283,581
(712,560)
(2,464,046)
$ (712,560)
$ (2,180,465)
(628,193)
(2,578,270)
693,228
3,271,498
$ 65,035
$ 693,228
The date to which events occurring after December 31, 2023, the date of the most recent balance sheet, have been evaluated
for possible adjustments to the financial statements or disclosure is March 15, 2024, which is the date on which the financial
statements were available to be issued.
48 NOTES TO CONSOLIDATED 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
DAVID J. HONOLD
DIRECTOR
BRANDON C. PARK
DIRECTOR
MAURY PEIPERL
DIRECTOR
JOSEPH J. THOMAS
PRESIDENT & CEO
DIRECTOR
EXECUTIVE OFFICERS & SENIOR LEADERSHIP TEAM
SHAUN E. MURPHY
SENIOR EXECUTIVE VICE PRESIDENT &
CHIEF OPERATING OFFICER AND CHIEF RISK OFFICER
RAJ MEHRA
EXECUTIVE VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
RICHARD A. HUTCHISON
EXECUTIVE VICE PRESIDENT &
CHIEF MORTGAGE OFFICER
VICTORIA S. LOUCKS
EXECUTIVE VICE PRESIDENT &
HEAD OF DEPOSIT PRODUCTS
MARC TOHIR
EXECUTIVE VICE PRESIDENT &
HEAD OF COMMERCIAL BANKING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
49
SHAREHOLDER & COMPANY INFORMATION
SENIOR LEADERSHIP
JAMIE ADKINS
HEAD OF MORTGAGE OPERATIONS
DAVE DOCKENDORFF
LOUDOUN MARKET PRESIDENT
DORIS HAMBRIGHT
HR DIRECTOR
KATHLEEN JOHNSON
CHIEF MARKETING OFFICER
JENNY JOUDEH
HEAD OF DEPOSIT OPERATIONS
ERIN MOORE
HEAD OF LOAN OPERATIONS
THYDA PRICE
COMPLIANCE DIRECTOR
DAVID SANDERS
CHIEF ACCOUNTING OFFICER
FLORANTE SANTOS
CHIEF TECHNOLOGY OFFICER
GABRIELLE SENG
BRANCH BANKING MANAGER
RAZ SOFY
CONTROLLER
DARREN TULLY
FAIRFAX MARKET PRESIDENT
STEVE WITT
PRINCE WILLIAM MARKET PRESIDENT
50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SERVING OUR COMMUNITIES
The Freedom Bank Foundation's mission is to support and foster relationships with
non-profit organizations that promote financial inclusion and make the communities
Freedom Bank serves more vibrant and more equitable.
The Foundation has engaged with the Community Business Partnership
(CBP) to administer the NOVA Freedom Fund, which provides financing
and technical assistance to minorities and entrepreneurs of color. The
Fund has already made a meaningful difference for local business owners
and through continued support, we look forward to helping many more
in our area. To date, the Foundation has raised over $250,000 for the
NOVA Freedom Fund and supported seven companies. We are focused
on expanding the number of businesses in the portfolio, and currently
have a pipeline of over 100 companies.
The Freedom Bank Foundation receives donations from the Bank and
its employees, as well as coordinates its annual Campaign Celebration
to leverage the platform to promote economic inclusion in the local
community. Freedom Bank, through the Foundation and in line with the
Bank's commitment to diversity and inclusion initiatives, is making an
effort to level the playing field to achieve greater equality.
Freedom Bank Board Chairman,
H. Jason Gold, presenting at the
2023 Freedom Bank Gala
SHAREHOLDER & COMPANY INFORMATION
51
Our IDEAS Make the Difference
Lots of banks say they’re different. We actually are!
Business owners tell us they demand creative and flexible banking solutions. Freedom Bank was
built from the ground up to serve the needs of entrepreneurs. Below are some of the dynamic
organizations we assisted this year. If you’re looking for an entrepreneurial banking partner that is
committed to your growth and success by getting to “yes” quickly, contact Freedom Bank.
$1,250,000
For Commercial Mortgage Refinance
& Short-Term Working Capital
$4,000,000
For Bond Financing for Large
Mixed-Use Redevelopment Project
$5,745,000
For Property Acquisition and
Facility Construction & Buildout
$1,330,000
For Bridge Loan to Acquire Land
& Stream Restoration Easement
$2,000,000
Term Loan for
Business Acquisition
$25,000,000
Term Loan to Refinance Main Street
Lending Program Loan Facility
Woodstock Cabinetry
$990,000
SBA 7A Loan to Purchase Owner
Occupied Real Estate & Equipment
$4,000,000
Multi-Year Revolver Loan for
Location Expansion
$712,500
Working Capital Line of Credit for
Clear Sky Holdings, LLC
Putting our IDEAS to work when you need us most.
Business Banking • Personal Banking • Mortgage Banking
Call 703-242-5300 or visit freedom.bank/ideas.
CORPORATE HEADQUARTERS
Freedom Financial Holdings, Inc.
10555 Main Street
Fairfax, VA 22030
703-242-5300
TRANSFER AGENT
Equiniti Trust Company, LLC (“EQ”)
55 Challenger Road, Floor 2
Ridgefield Park, NJ 07660
800-937-5449
www.equiniti.com
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Crowe LLP
Washington, D.C.
COMMON STOCK
Freedom Financial Holdings, Inc.
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 in person with a virtual option and will be held on
Thursday, April 25, 2024 at 4 pm
Shareholders may participate in the meeting by logging into Zoom using the following
Meeting ID: 410 003 4459 and Passcode: 10555. Shareholders will have the ability to ask questions
during the Annual Meeting via the "chat" function on the Zoom platform.
CHANTILLY
FAIRFAX
MANASSAS
4090 Lafayette Center Drive, Suite B
Chantilly, VA 20151
10555 Main Street, Suite 100
Fairfax, VA 22030
10611 BaIls Ford Road, Suite 110
Manassas, VA 20109
571-395-4000
703-667-4167
703-349-2210
RESTON
VIENNA
MORTGAGE DIVISION
11700 Plaza America Drive, Suite 110
Reston, VA 22190
502 Maple Avenue West
Vienna, VA 22180
4090 Lafayette Center Drive, Suite B
Chantilly, VA 20151
703-663-2300
703-667-4170
703-766-6400
freedom.bank
OTCQX : FDVA
00DFDDF