Freedom Financial Holdings, Inc.
Annual Report 2024

Plain-text annual report

EMPOWERING DREAMS INNOVATING BANKING 2024 A N N UA L R E P O R T Business Banking • Personal Banking • Mortgage Banking freedom.bank DFDDF ABOUT THE BANK • Freedom Bank empowers our clients to achieve their dreams by providing innovative business, personal, and mortgage banking solutions. • To make a lasting impact in the Northern Virginia region by empowering our clients with entrepreneurial solutions, easy-to-use technology and exceptional service, providing meaningful career opportunities for colleagues, investing in the communities we serve, and driving strong returns for our shareholders. • 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 Our Core Values Our Purpose freedom.bank $479 2018Y $500 2019Y $767 2020Y $877 2021Y $991 2022Y $1,085 2023Y $1,090 2024Y CAGR of 14.7% TOTAL ASSETS ($M) 2018Y 2019Y 2020Y 2021Y 2022Y 2023Y CAGR of 8.7% $8.47 $8.86 $10.09 $11.45 $10.43 $10.64 $2.41 $2.44 $12.84(1) $13.08(1) 2024Y $11.39 $2.55 $13.94(1) Tangible Book Value Per Share AOCI Add Back (1)Excludes Negative AOCI Impact TANGIBLE BOOK VALUE PER SHARE Our Vision 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 52 SHAREHOLDER & COMPANY INFORMATION 55 SERVING OUR COMMUNITIES A LETTER TO OUR SHAREHOLDERS 02 A LETTER TO OUR SHAREHOLDERS March 15, 2025 Dear Shareholders: On behalf of our directors and officers, we are pleased to present the 2024 Annual Report for Freedom Financial Holdings, Inc. It highlights our financial performance during the past year and demonstrates our notable successes in the face of a complex economic and regulatory landscape. Our colleagues have focused on managing growth, investing in talent and technology, and enhancing internal controls as a part of surpassing for the first time $1.0 billion in total assets last year. Clients have continued to reward us with their trust and the transactions showcased at the back of this report affirm Freedom Bank’s innovative approach to banking. Our culture of IDEAS starts with a keen understanding of client needs and market opportunities and empowers our clients with entrepreneurial solutions, easy-to-use technology, and exceptional service. You will find on the inside front cover a description of our purpose as a company with a new focus on Empowering Dreams, Innovating Banking. This includes an expanding focus on individual and business clients to help them achieve their financial goals through our experienced bankers, quick decisions, flexible solutions, innovative technology, and responsive service that allow us to be the client’s primary relationship bank. The banking sector in 2024 navigated through a challenging environment characterized by geopolitical instability and an evolving regulatory landscape. Despite these headwinds, the banking industry has demonstrated remarkable adaptability, with a continued focus on digital transformation to enhance customer experiences and modernize technology. Throughout 2024, we invested in talent that resulted in new senior leaders joining our expanding company, including our Head of Commercial Banking, Chief Credit Officer, and Director of Mortgage Sales. We embraced our digital transformation and completed the successful rollout of a new mobile banking platform that includes digital deposit account opening capability. We are pleased to report that Freedom Financial Holdings, the parent company of Freedom Bank, delivered strong financial results for the year 2024: • Our net income for the full year 2024 was $4,710,284, or $0.64 per diluted share, representing a significant increase of 103.2% compared to 2023. • Total volume of mortgage loans originated increased 25.2% over prior year to $183.3 million which resulted in non-interest income increasing 23.6% over prior year to $4.8 million. • Total assets reached $1.09 billion as of December 31, 2024 and we have maintained strong liquidity compared to other metro banks with a low loan-to-deposit ratio of 84%. • The Company continues to be well capitalized with a strong Leverage ratio of 10.41%, Common Equity Tier 1 ratio of 13.57%, and a Total Capital ratio of 14.33%. • We have a smaller exposure to commercial real estate (CRE) than most banks our size in the DC Region with total investor CRE loans to total capital of 158% at year-end, well below the regulatory guidelines of 300%. • Asset quality has improved as we have reduced classified loans by $15.4MM or 47.4% and classified loans represented 13.81% of capital at year-end. • The tangible book value of our common stock, excluding AOCI adjustments, increased to $13.94 per share by the end of 2024, up from $13.25 per share at the end of 2023. We are focused on five key ingredients to ensure that the Freedom Bank achieves improving results over the next three years: loan growth from lead C&I relationships; core deposit funding with a new consumer initiative; balance sheet composition to remix assets and funding and improve margin; growing balanced non-interest revenue from mortgage, SBA and Treasury; and expense management to improve efficiency using technology. All executives have clear goals that align with these objectives. 03 A LETTER TO OUR SHAREHOLDERS Our key business lines and highlights are provided below: Commercial Banking • Seasoned team of twelve Commercial Bankers and Portfolio Managers • Broad focus across the C&I, Industry Verticals, SBA Lending and Commercial Real Estate markets • Strong business banking franchise with C&I loans representing 21% of total loans as of December 31, 2024 Community Banking • Rational branch network with five branches across Northern Virginia market • Strong core deposits with non-interest deposits comprising 15% of total deposits as of December 31, 2024 • Uninsured deposits to total deposits very low at 22.51% Treasury Services • Robust Treasury Management team of five associates and Payment solutions on Apiture and Fiserv platforms • Merchant Services offered through a strategic partnership with Fiserv/First Data • Business Credit Cards offered through a strategic partnership with Elan Financial Services Mortgage Banking • Experienced team of twelve mortgage loan officers and dedicated Mortgage Operations team • Generated residential loan production of $183.4 million with average loan size of $599 thousand. • Extensive product offerings, including VA, FHA, VHDA, and USDA mortgages 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. The Foundation has now raised over $350,000 for the Fund, which makes loans to underrepresented entrepreneurs in the Northern Virginia region in partnership with the Community Business Partnership, Inc. (CBP) and the Latino Economic Development Center (LEDC). We are living through a period of unprecedented changes in the federal government that will have far reaching implications to businesses and individuals across Freedom Bank’s footprint. We are actively monitoring the impact on our company and evaluating the effects on our clients. From those conversations, we are finding that there is uncertainty and anxiety from the evolving policy environment, but there are also opportunities for clients to start and grow businesses. Our bank remains committed to helping clients navigate both the challenges and prospects this may create. We are grateful for your continued support and trust in Freedom Bank. With the economic uncertainties that lie ahead, we are confident in our ability to navigate and transform these challenges into opportunities for growth and success. We look forward to making a lasting impact in the Northern Virginia region by empowering our clients to achieve their dreams, providing meaningful career opportunities for colleagues, investing in the communities we serve, and driving strong returns for our shareholders. Thank you for your investment in Freedom Bank. Sincerely, H. JASON GOLD Chairman of the Board JOSEPH J. THOMAS, CFA President & CEO Crowe LLP Independent Member Crowe Global (Continued) 1. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Stockholders and the Board of Directors of Freedom Financial Holdings, Inc. and Subsidiaries Fairfax, Virginia Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Freedom Financial Holdings, Inc. and Subsidiaries (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates 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. 2. Allowance for Credit Losses 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 application processes, including the loss estimation model and significant judgments 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.  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. Crowe LLP We have served as the Company's auditor since 2021. Washington, D.C. March 14, 2025 ASSETS 2024 2023 Cash and due from financial institutions $ 5,685,008 $ 2,442,050 Interest-bearing deposits with banks 23,004,874 21,806,078 Cash and Cash Equivalents 28,689,882 24,248,128 Securities available-for-sale, Net of Allowance for Credit Losses of 2024 $84,327; 2023 $0 209,687,859 211,263,518 Securities held to maturity, Net of Allowance for Credit Losses 2024 $72,609; 2023 $84,434 (fair value 2024 $18,231,634; 2023 $17,611,533) 20,315,651 20,114,269 Restricted stock investments 6,249,000 4,769,900 Loans held for sale 5,963,969 6,663,929 Loans receivable 767,897,544 769,743,881 Allowance for credit losses (6,534,757) (10,519,335) Net Loans 761,362,787 759,224,546 Premises and equipment, net 767,773 878,957 Accrued interest receivable 4,155,077 3,721,730 Deferred tax asset, net 7,560,441 7,633,840 Bank-owned life insurance 27,560,616 26,731,339 Right-of-use asset, net 1,874,403 1,987,075 Other assets 16,299,753 17,430,819 TOTAL ASSETS $1,090,487,211 $1,084,668,050 NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements. CONSOLIDATED BALANCE SHEETS December 31 2024 and 2023 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS 06 NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements. LIABILITIES 2024 2023 Deposits Demand deposits Non-interest bearing $ 133,665,194 $ 143,956,306 Interest bearing 475,397,117 519,339,202 Savings deposits 3,866,241 4,120,770 Time deposits 296,603,142 253,641,860 Total Deposits 909,531,694 921,058,138 Borrowings 65,000,000 50,000,000 PPP liquidity facility advances 159,825 270,576 Subordinated debt (net of issuance costs) 19,850,643 19,752,719 Allowance for Credit losses on off-balance sheet exposures 123,071 89,029 Accrued interest payable 2,445,742 2,842,646 Lease liability 2,013,912 1,925,671 Other liabilities 9,922,918 11,501,219 TOTAL LIABILITIES 1,009,047,805 1,007,439,998 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, 2024 and 2023 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: 7,268,087 and 6,582,677 shares issued and outstanding at December 31, 2024 and 2023, respectively (includes 118,032 and 88,993 unvested shares, respectively) 71,501 64,937 Non-Voting Common Stock: 0 and 673,000 shares issued and outstanding at December 31, 2024 and 2023, respectively - 6,730 Additional paid-in capital 58,347,356 58,320,419 Accumulated other comprehensive income (loss), net (18,240,683) (17,715,015) Retained earnings 41,261,232 36,550,981 Total Stockholders’ Equity 81,439,406 77,228,052 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $1,090,487,211 $1,084,668,050 CONSOLIDATED FINANCIAL STATEMENTS 07 CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31 2024 and 2023 NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements. 2024 2023 INTEREST INCOME Interest and fees on loans $ 48,526,462 $ 44,430,123 Interest on investment securities  Taxable 10,886,330 9,749,795  Tax-exempt 643,094 602,891 Interest on deposits with banks 1,540,629 1,738,669 Total Interest Income 61,596,515 56,521,478 INTEREST EXPENSE Interest on deposits 31,487,131 27,605,539 Interest on borrowings 4,851,277 1,724,125 Total Interest Expense 36,338,408 29,329,664 Net Interest Income 25,258,107 27,191,814 PROVISION FOR CREDIT LOSSES Credit Loss expense - Loans (714,426) 5,888,700 Credit loss expense - debt securities held-to-maturity (11,825) (21,195) Credit loss expense - debt Securities available-for-sale 84,327 - Credit loss expense - off balance sheet credit exposures 34,042 (130,064) Total Credit Loss Expense (607,882) 5,737,441 Net Interest Income After Provision for Credit Losses 25,865,989 21,454,373 NON-INTEREST INCOME Gain on sale of mortgage loans 1,997,595 1,466,761 Gain on sale of SBA-guaranteed loans 287,032 - Gain on sale/call of investment securities 1,816 - Service charges and other income 1,549,199 1,294,905 Loan servicing income 150,363 226,734 Increase in cash surrender value of bank-owned life insurance 829,278 906,943 Total Non-Interest Income 4,815,283 3,895,343 NON-INTEREST EXPENSES Officer and employee compensation and benefits 14,859,514 14,322,882 Occupancy expense 1,114,883 746,494 Equipment and depreciation expense 90,680 112,340 Insurance expense 914,264 805,468 Professional fees 2,078,782 1,565,129 Data and item processing 2,371,647 1,967,662 Business development 539,856 473,676 Franchise taxes 1,232,744 1,190,263 Mortgage fees and settlements 421,507 320,197 Other operating expense 1,458,296 1,673,201 Total Non-Interest Expenses 25,082,173 23,177,312 08 CONSOLIDATED FINANCIAL STATEMENTS NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Years Ended December 31 2024 and 2023 2024 2023 Net Income $ 4,710,251 $ 2,318,697 Other Comprehensive Income: Unrealized gains/(losses) on securities: Unrealized holdings gain/(loss) arising during the period (190,530) 211,460 Reclassification adjustment for losses (gains) included in net income - - Tax effect 42,870 (47,579) Net of Tax (147,660) 163,881 Unrealized gains/(losses) on cash flow hedge: Unrealized holdings gain/(loss) (518,581) (930,425) Reclassification adjustment for losses (gains) included in net income - - Tax effect 140,573 164,916 Net of Tax (378,008) (765,509) Total Other Comprehensive Loss (525,668) (601,628) COMPREHENSIVE INCOME (LOSS) $ 4,184,583 $ 1,717,069 2024 2023 INCOME BEFORE INCOME TAXES 5,599,099 2,172,404 INCOME TAX EXPENSE 888,848 (146,293) NET INCOME $ 4,710,251 $ 2,318,697 EARNINGS PER COMMON SHARE – BASIC $ 0.65 $ 0.32 EARNINGS PER COMMON SHARE – DILUTED $ 0.65 $ 0.32 WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING – BASIC 7,270,960 7,292,638 WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING – DILUTED 7,277,117 7,320,455 CONSOLIDATED FINANCIAL STATEMENTS 09 NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Years Ended December 31 2024 and 2023 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, 2023 7,184,259 $71,843 $58,241,499 $(17,113,387) $34,113,781 $75,313,736 Net income - - - - 2,318,697 2,318,697 Other comprehensive income - - - (601,628) - (601,628) Common stock repurchased (56,632) (567) (573,193) - - (573,760) Stock options exercised - - - - - - Restricted stock - vested net of shares withheld 39,057 391 (139,191) - - (138,800) Stock-based compensation - stock options - - - - - - Stock-based compensation - restricted stock - - 791,304 - - 791,304 Cumulative Effect Change in Accounting Principle - CECL - - - - 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 Net income - - - - 4,710,251 4,710,251 Other comprehensive loss - - - (525,668) - (525,668) Common stock repurchased (56,676) (567) (582,675) - - (583,242) Stock options exercised 1,575 16 12,348 - - 12,364 Restricted stock - vested net of shares withheld 38,472 385 (88,418) - - (88,033) Stock-based compensation - stock options - - - - - - Stock-based compensation - restricted stock - - 685,682 - - 685,682 Non-voting stock converted to voting stock (673,000) (6,730) - - - (6,730) Voting stock converted from non-voting stock 673,000 6,730 - - - 6,730 BALANCE, DEC. 31, 2024 7,150,055 $71,501 $58,347,356 $(18,240,683) $41,261,232 $81,439,406 10 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31 2024 and 2023 CASH FLOWS FROM OPERATING ACTIVITIES 2024 2023 Net income $ 4,710,251 $ 2,318,697 Adjustments to reconcile net income to net cash from operating activities: Provision for credit losses (607,882) 5,737,441 Depreciation and amortization of premises and equipment 111,184 144,432 Net amortization of available-for-sale securities (26,858) (199,263) Deferred income tax benefit 226,012 (473,592) Net realized gains on sales of investment securities (1,816) - Net gain on sale of mortgage loans (1,997,595) (1,466,761) Net gain on sale of SBA guaranteed loans (287,032) - Loans held for sale originated (108,960,962) (83,817,402) Proceeds from the sale of loans held for sale 110,961,129 83,684,620 Proceeds from the sale of SBA loans 3,513,630 - Stock-based compensation expense 597,648 652,504 Subordinated debt amortization expense 97,925 77,925 Earnings on company-owned life insurance (829,278) (743,011) Repayment of operating lease liabilities 200,913 (187,891) (Increase) decrease in: Accrued interest receivable (433,348) 62,346 Other assets 643,313 (456,522) Increase (decrease) in: Accrued interest payable (396,903) 1,576,850 Other liabilities (1,578,301) (3,059,606) Net Cash Provided by Operating Activities 5,942,030 3,850,767 NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements. 11 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31 2024 and 2023 NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements. CASH FLOWS FROM FINANCING ACTIVITIES Increase in deposits, net $ (11,526,444) $ 72,063,059 Advances from Borrowings 161,510,000 125,000,000 Repayment of Borrowings (146,510,000) (100,000,000) Advances from the Payment Protection Plan Liquidity Facility (“PPPLF”) - - Repayment of advances from the PPPLF (110,752) (5,555,722) Proceeds from subordinated debt, net of issuance costs - - Proceeds from stock options 12,364 - Repurchase of common stock (583,242) (573,760) Net Cash Provided by Financing Activities 2,791,926 90,933,577 Net Increase in Cash and Cash Equivalents 4,441,754 (10,525,887) Cash and Cash Equivalents, Beginning of Year 24,248,128 34,774,015 CASH AND CASH EQUIVALENTS, END OF YEAR $ 28,689,882 $ 24,248,128 CASH FLOWS FROM INVESTING ACTIVITIES 2024 2023 Available-for-sale securities: Proceeds from sales $ 2,000,000 $ - Maturities, prepayments and calls 23,557,961 15,742,241 Purchases (24,228,483) (45,036,999) Held-to-maturity securities: Maturities, prepayments and calls 540,819 899,607 Purchases (730,375) (4,000,000) (Purchase) sale of restricted stock investments, net (1,479,100) (880,700) Loan (originations) and payments (not including PPP), net (4,063,776) (77,804,749) PPP loan origination - - PPP loan payments 110,752 5,555,722 SBA loan origination, net - - Purchased loans, net of payments - - Acquisition of premises and equipment - (45,996) Purchase of company-owned life insurance - 260,643 Net Cash Used in Investing Activities (4,292,202) (105,310,231) 12 CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL NONCASH DISCLOSURES 2024 2023 Unrealized loss on securities available-for-sale, net $ (190,530) $ 211,460 Loans transferred (to)/from held-for-sale from/to portfolio $ - $ - Right-of-use assets obtained in exchange for lease liabilities $ - $ - Unrealized gain/(loss) on cash flow derivative $ (518,581) $ (930,425) Unfunded commitment on limited partnership investments $ 2,577,870 $ 4,089,337 NOTE: The Notes to Consolidated Financial Statements are an integral part of these statements. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31 2024 and 2023 SUPPLEMENTAL INFORMATION Cash paid during the year for interest $ 36,735,312 $ 27,877,523 Cash paid during the year for income taxes $ 128,947 $ 980,000 13 CONSOLIDATED FINANCIAL STATEMENTS 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. 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. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 AND 2023 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 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 that 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 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 loan losses and net deferred loan fees. Interest on loans is generally computed using the simple interest method. Loan origination and commitment fees, as well as certain direct origination costs, are deferred and amortized as a yield adjustment over the lives of the related loans using the interest method. Amortization of deferred loan fees is discontinued when a loan is placed on non-accrual status. The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 91 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. 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 $150,363 and $226,734 for the years ended December 31, 2024 and 2023, 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 loan losses. After foreclosure, valuations are periodically performed by management and property held for sale is carried at the lower of the new cost basis or fair value less cost to sell. Impairment losses on property to be held and used are measured as the amount by which the carrying amount of a property exceeds its fair value. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically performed by management, and any subsequent write downs are recorded as a charge to non-interest expense, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell. The Company had no other real estate owned on December 31, 2024 and 2023. 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. 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 2024 2023 Average number of common shares outstanding 7,270,960 7,292,638 Effect of dilutive options 6,157 27,817 Average number of common shares outstanding used to calculate diluted earnings per common share 7,277,117 7,320,455 There were no antidilutive options for the year ended December 31, 2024 and 2023. 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. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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. In November 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” These amendments require, among other things, that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this ASU and all existing segment disclosures in Topic 208. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply the amendments retrospectively to all periods presented in the financial statements. The Company adopted ASU 2023-07 on January 1, 2024 and it did not have a material impact on its accounting and disclosures." RECENT ACCOUNTING PRONOUNCEMENTS In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". The amendment requires companies to disclose, on an annual basis, specific categories in the effective tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, ASU 2023-09 requires companies to disclose additional information about income taxes paid. ASU 2023-09 will be effective for annual periods beginning January 1, 2025 and will be applied on a prospective basis with the option to apply the standard retrospectively. The adoption of ASU No. 2023-09 is not expected to have a material impact on the Consolidated Financial Statements, but will impact our income tax disclosures. 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, 2024 and 2023 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, 2024 and 2023 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, 2024 and 2023 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses: 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AMORTIZED COST GROSS UNRECOGNIZED GAINS GROSS UNRECOGNIZED LOSSES FAIR VALUE ALLOWANCE FOR CREDIT LOSSES Held-to-maturity Corporate notes $ 4,000,000 $ - $ (405,160) $ 3,594,840 $ (10,080) Municipal securities - tax exempt 10,702,115 75,430 (1,026,144) 9,751,401 - Municipal securities - taxable 5,686,145 - (800,752) 4,885,393 (62,529) Total Held-to-maturity $ 20,388,260 $ 75,430 $ (2,232,056) $18,231,634 $ (72,609) DEC. 31, 2024 AMORTIZED COST GROSS UNREALIZED GAINS GROSS UNREALIZED LOSSES ALLOWANCE FOR CREDIT LOSSES FAIR VALUE Available-for-sale Corporate notes $ 42,536,312 $ 2,325 $ (4,955,701) $ (84,327) $ 37,498,609 Agency notes 1,000,000 - (10,905) - 989,095 Mortgage-backed securities 99,714,719 114,585 (11,344,660) - 88,484,644 Municipal securities - tax exempt 11,189,998 - (1,501,122) - 9,688,876 Municipal securities - taxable 24,900,356 - (4,186,106) - 20,714,250 SBA loan pools 3,855,101 5,322 (77,886) - 3,782,537 Asset-backed securities 8,204,136 115,893 (2,493) - 8,317,536 Private-label mortgage-backed securities 16,793,316 4,322 (2,535,983) - 14,261,655 Private-label commercial mortgage-backed securities 8,982,381 7,906 (101,916) - 8,888,371 Private-label collateralized loan obligations 17,082,044 19,118 (38,876) - 17,062,286 Total Available-for-sale $234,258,363 $ 269,471 $(24,755,648) $ (84,327) $209,687,859 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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: Securities pledged to the Federal Home Loan Bank (FHLB) at years ending 2024 and 2023 had a carrying amount of $8,181,598 and $43,623,462, respectively. Securities pledged to the Federal Reserve Bank (FRB) at years ending 2024 and 2023 had a carrying amount of $39,910,836 and $8,539,099, respectively. AVAILABLE-FOR-SALE HELD-TO-MATURITY AMORTIZED COST FAIR VALUE AMORTIZED COST FAIR VALUE Amounts maturing in 1 year or less $ 500,000 $ 499,153 $ - $ - After 1 year - 5 years 10,469,845 9,417,214 4,772,857 4,346,124 After 5 years - 10 years 67,515,370 60,462,371 2,186,144 1,785,967 After 10 years 30,282,731 27,674,451 13,429,259 12,099,543 108,767,946 98,053,189 20,388,260 18,231,634 Mortgage-backed securities 125,490,416 111,634,670 - - $ 234,258,362 $209,687,859 $ 20,388,260 $ 18,231,634 AMORTIZED COST GROSS UNRECOGNIZED GAINS GROSS UNRECOGNIZED LOSSES FAIR VALUE ALLOWANCE FOR CREDIT LOSSES Held-to-maturity Corporate notes $4,000,000 $ - $ (476,920) $ 3,523,080 $ (13,500) Municipal securities - tax exempt 10,428,125 7,818 (1,091,614) 9,344,329 - Municipal securities - taxable 5,686,144 - (942,020) 4,744,124 (70,934) Total Held-to-maturity $20,114,269 $ 7,818 $ (2,510,554) $17,611,533 $ (84,434) DEC. 31, 2023 AMORTIZED COST GROSS UNREALIZED GAINS GROSS UNREALIZED LOSSES ALLOWANCE FOR CREDIT LOSSES FAIR VALUE Available-for-sale Corporate notes $ 42,234,907 $ 8,591 $ (5,868,898) $ - $ 36,374,600 Agency notes 1,000,000 - (24,671) - 975,329 Mortgage-backed securities 86,019,318 221,612 (10,221,181) - 76,019,749 Municipal securities - tax exempt 11,242,484 - (1,017,708) - 10,224,776 Municipal securities - taxable 25,250,785 1,005 (4,209,224) - 21,042,566 SBA loan pools 5,813,205 11,218 (120,235) - 5,704,188 Asset-backed securities 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 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At year-end 2024 and 2023, there were holdings of $17.5 million and $9.6 million of securities issued individual counterparty’s, other than U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity. Information pertaining to securities with gross unrealized losses and unrecognized losses on December 31, 2024, 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, 2024 Available-for-sale Corporate notes $ - $ - $ 4,955,701 $ 35,477,192 $ 4,955,701 $ 35,477,192 Agency notes - - 10,905 989,095 10,905 989,095 Mortgage-backed securities 277,382 18,630,706 11,067,278 46,409,683 11,344,660 65,040,389 Municipal securities - tax exempt - - 1,501,122 9,688,876 1,501,122 9,688,876 Municipal securities - taxable - - 4,186,106 20,714,249 4,186,106 20,714,249 SBA loan pools - - 77,886 2,786,876 77,886 2,786,876 Asset-backed securities 1,742 1,136,050 751 999,250 2,493 2,135,300 Private-label mortgage-backed securities - - 2,535,983 13,465,010 2,535,983 13,465,010 Private-label commercial mortgage-backed securities - - 101,916 6,858,567 101,916 6,858,567 Private-label collateralized loan obligations - - 38,876 2,948,797 38,876 2,948,797 TOTALS $ 279,124 $19,766,756 $24,476,524 $140,337,595 $24,755,648 $160,104,351 GROSS UNRECOGNIZED LOSSES FAIR VALUE GROSS UNRECOGNIZED LOSSES FAIR VALUE GROSS UNRECOGNIZED LOSSES FAIR VALUE Held-to-maturity Corporate notes $ - $ - $ 405,160 $ 3,594,840 $ 405,160 $ 3,594,840 Municipal securities - tax exempt - - 1,026,144 4,893,128 1,026,144 4,893,128 Municipal securities - taxable - - 800,752 4,885,392 800,752 4,885,392 $ - $ - $ 2,232,056 $ 13,373,360 $ 2,232,056 $ 13,373,360 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2024 2023 Proceeds $ 2,000,000 $ - Gross gains - - Gross losses - - 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, 2024, 251 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, 51 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. Management concluded that the financial condition of an issuer of one security, with a book value of $694,800, was credit related and management recorded a credit loss expense of $84,327 in 2024. The allowance for credit losses for available for sale securities was $84,327 and $0 for the years ended December 2024 and 2023, respectively. The proceeds from sales and calls of securities and the associated gains and losses are listed below. 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 $ 86,958 $ 2,475,527 $ 5,781,940 $ 31,890,481 $ 5,868,898 $ 34,366,008 Agency notes - - 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 8,873 519,849 111,362 3,663,028 120,235 4,182,877 Asset-backed securities 9,545 1,914,947 121,514 4,353,612 131,059 6,268,559 Private-label mortgage-backed securities - - 2,596,245 14,854,381 2,596,245 14,854,381 Private-label commercial mortgage-backed securities 169,269 4,427,126 114,877 3,313,256 284,146 7,740,382 Private-label collateralized loan obligations 15,512 1,963,871 200,578 11,730,377 216,090 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 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The tax provision related to these net realized gains and losses was $0 and $0 for the years ended December 31, 2024 and 2023, respectively. Restricted stock investments consist of the following at December 31: 2024 2023 Federal Reserve Bank stock $ 2,296,800 $ 2,296,800 Federal Home Loan Bank stock 3,886,200 2,407,100 Community Bankers Bank stock 66,000 66,000 TOTALS $ 6,249,000 $ 4,769,900 The following table shows a rollforward of the allowance for credit losses on held to maturity securities for the twelve months ended December 31, 2024 and 2023: The following table shows a rollforward of the allowance for credit losses on held to maturity securities for the twelve months ended December 31, 2024 and 2023: CORPORATE NOTES MUNICIPAL SECURITIES Balance December 31, 2023 $ 13,500 $ 70,934 Provision for credit losses (3,420) (8,405) Balance December 31, 2024 $ 10,080 $ 62,529 CORPORATE NOTES MUNICIPAL SECURITIES Balance December 31, 2022 $ - $ - Adjustment for adoption of ASC 326 21,120 84,509 Provision for credit losses (7,620) (13,575) Balance December 31, 2023 $ 13,500 $ 70,934 CORPORATE NOTES Balance December 31, 2023 $ - Provision for credit losses $ 84,327 Balance December 31, 2024 $ 84,327 CORPORATE NOTES Balance December 31, 2022 $ - Provision for credit losses $ - Balance December 31, 2023 $ - 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Loans Receivable Loans receivable include the following at December 31: 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 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 percent. 2024 2023 Commercial and industrial $ 163,788,714 $ 177,703,039 Real estate - commercial 363,642,750 389,737,990 Real estate - construction 10,192,974 29,835,917 Real estate - residential 206,051,759 145,605,624 Consumer and other 24,233,197 26,847,526 Loans, gross 767,909,394 769,730,096 Deferred loan (fees)/costs, net (11,850) 13,785 Loans receivable 767,897,544 769,743,881 Allowance for credit losses (6,534,757) (10,519,335) Loans, net $ 761,362,787 $ 759,224,546 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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: 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 2024 Commercial and industrial $ 265,352 $ 359,126 $8,069,643 $ 8,694,121 $155,094,593 $163,788,714 $ 8,069,643 Real estate - commercial 3,455,951 2,680,041 - 6,135,992 357,506,758 363,642,750 3,172,070 Real estate - construction 1,141,182 - - 1,141,182 10,192,974 11,334,156 1,141,182 Real estate - residential 965,074 - 1,302,801 2,267,875 203,783,884 206,051,759 1,302,801 Consumer - - - - 24,233,197 24,233,197 - TOTALS $5,827,559 $3,039,167 $9,372,444 $18,239,170 $750,811,406 $769,050,576 $13,685,696 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 - 5,652,748 8,980,411 380,757,579 389,737,990 5,652,748 Real estate - construction 272,701 - - 272,701 29,563,216 29,835,917 - Real estate - residential 334,596 - 1,430,032 1,764,628 143,840,996 145,605,624 1,430,032 Consumer - - - - 26,847,526 26,847,526 - TOTALS $ 3,934,960 $ 964,112 $11,469,932 $16,369,004 $753,361,092 $769,730,096 $11,469,932 YEAR 2024 COMMERCIAL & INDUSTRIAL REAL ESTATE - COMMERCIAL REAL ESTATE - CONSTRUCTION REAL ESTATE - RESIDENTIAL CONSUMER TOTAL Allowance for Credit Losses Beginning balance $ 2,601,443 $ 5,860,063 $ 667,111 $ 768,624 $ 622,094 $ 10,519,335 Charge-offs (2,066,121) (727,748) - - (539,708) (3,333,577) Recoveries 10,935 - - - 52,490 63,425 Provision 1,049,639 (2,161,720) (552,478) 544,430 405,703 (714,426) Ending Balance $ 1,595,896 $ 2,970,595 $ 114,633 $ 1,313,054 $ 540,579 $ 6,534,757 Loans Receivable Ending Balance $163,788,714 $363,642,750 $10,192,974 $206,051,759 $24,233,197 $767,909,394 YEAR 2023 COMMERCIAL & INDUSTRIAL REAL ESTATE - COMMERCIAL REAL ESTATE - CONSTRUCTION REAL ESTATE - RESIDENTIAL CONSUMER TOTAL Allowance for Credit Losses 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 (983,951) (628,853) - - (893,049) (2,505,853) Recoveries - - - - - - Provision 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 $177,703,039 $389,737,990 $ 29,835,917 $145,605,624 $ 26,847,526 $769,730,096 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2024 and 2023: The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2024 and 2023: Cash basis income recognized on non-accruals loans approximates interest income recognized as of December 31, 2024 and 2023. 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 YEAR 2024 NONACCRUAL WITH NO ALLOWANCE FOR CREDIT LOSS NONACCRUAL WITH ALLOWANCE FOR CREDIT LOSS LOANS PAST DUE OVER 89 DAYS STILL ACCRUING Commercial and industrial $ 7,368,769 $ 700,874 $ - Real estate - commercial 3,172,070 - - Real estate - construction 1,141,182 - - Real estate - residential 1,302,801 - - Consumer - - - TOTALS $ 12,984,822 $ 700,874 $ - YEAR 2023 NONACCRUAL WITH NO ALLOWANCE FOR CREDIT LOSS NONACCRUAL WITH ALLOWANCE FOR CREDIT LOSS LOANS PAST DUE OVER 89 DAYS STILL ACCRUING Commercial and industrial $ 1,903,692 $ 2,483,460 $ - Real estate - commercial 525,000 5,127,748 - Real estate - construction - - - Real estate - residential 1,430,032 - - Consumer - - - TOTALS $ 3,858,724 $ 7,611,208 $ - YEAR 2024 REAL ESTATE BUSINESS ASSETS Commercial and industrial $ - $ 7,870,364 Real estate - commercial 6,200,059 - Real estate - construction 1,141,182 - Real estate - residential 1,882,454 - Consumer - - TOTALS $ 9,223,695 $ 7,870,364 YEAR 2023 REAL ESTATE BUSINESS ASSETS Commercial and industrial $ - $ 2,483,460 Real estate - commercial 5,127,748 - Real estate - construction - - Real estate - residential - - Consumer - - TOTALS $ 5,127,748 $ 2,483,460 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. An analysis of the credit quality indicators is as follows at December 31: Term Loan Amortized Cost Basis by Origination Year AS OF DECEMBER 2024 2024 2023 2022 PRIOR TOTAL Commercial and industrial Risk Rating Pass $36,833,329 $48,188,962 $28,074,284 $33,525,243 $146,621,818 Special Mention 1,476,405 1,677,983 2,001,778 4,153,365 9,309,531 Substandard - 1,108,461 604,147 2,967,738 4,680,346 Doubtful - - 3,177,019 - 3,177,019 Loss - - - - - TOTALS $38,309,734 $50,975,406 $33,857,228 $40,646,346 $163,788,714 Current Period gross write offs $ - $ - $ - $ 2,066,121 $ 2,066,121 AS OF DECEMBER 2024 2024 2023 2022 PRIOR TOTAL Real Estate - commercial Risk Rating Pass $ 5,057,381 $ 22,395,217 $ 48,025,173 $271,139,327 $346,617,098 Special Mention - - 4,987,668 5,837,925 10,825,593 Substandard - - - 6,200,059 6,200,059 Doubtful - - - - - Loss - - - - - TOTALS $ 5,057,381 $ 22,395,217 $ 53,012,841 $283,177,311 $363,642,750 Current Period gross write offs $ - $ - $ - $ 727,748 $ 727,748 AS OF DECEMBER 2024 2024 2023 2022 PRIOR TOTAL Real Estate - construction Risk Rating Pass $ 2,613,634 $ 1,561,338 $ 2,735,550 $ 2,141,270 $ 9,051,792 Special Mention - - - - - Substandard - - 1,141,182 - 1,141,182 Doubtful - - - - - Loss - - - - - TOTALS $ 2,613,634 $ 1,561,338 $ 3,876,732 $ 2,141,270 $10,192,974 Current Period gross write offs $ - $ - $ - $ - $ - 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Term Loan Amortized Cost Basis by Origination Year AS OF DECEMBER 2024 2024 2023 2022 PRIOR TOTAL Real Estate - residential Risk Rating Pass $ 66,677,914 $ 55,862,833 $ 38,002,832 $43,625,726 $204,169,305 Special Mention - - - - - Substandard - 1,302,801 - 579,653 1,882,454 Doubtful - - - - - Loss - - - - - TOTALS $ 66,677,914 $ 57,165,634 $ 38,002,832 $44,205,379 $206,051,759 Current Period gross write offs $ - $ - $ - $ - $ - AS OF DECEMBER 2024 2024 2023 2022 PRIOR TOTAL Consumer Risk Rating Pass $ 212,124 $ 714,508 $ 259,105 $ 23,047,460 $ 24,233,197 Special Mention - - - - - Substandard - - - - - Doubtful - - - - - Loss - - - - - TOTALS $ 212,124 $ 714,508 $ 259,105 $ 23,047,460 $ 24,233,197 Current Period gross write offs $ - $ - $ - $ 539,708 $ 539,708 AS OF DECEMBER 2023 2023 2022 2021 PRIOR TOTAL Commercial and industrial Risk Rating Pass $62,902,476 $38,971,700 $11,253,007 $34,806,463 $147,933,646 Special Mention - 2,698,365 4,607,254 2,514,334 9,819,953 Substandard - 1,409,997 4,662,660 11,979,856 18,052,513 Doubtful - 1,896,927 - - 1,896,927 Loss - - - - - TOTALS $62,902,476 $44,976,989 $20,522,921 $49,300,653 $177,703,039 Current Period gross write offs $ - $ - $ - $ 983,951 $ 983,951 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 2023 2023 2022 2021 PRIOR TOTAL Real Estate - commercial Risk Rating Pass $ 23,746,053 $ 57,000,675 $ 78,138,200 $202,672,384 $361,557,312 Special Mention - 5,417,198 473,494 11,194,084 17,084,776 Substandard - 2,332,490 360,880 3,274,784 5,968,154 Doubtful - - - 5,127,748 5,127,748 Loss - - - - - TOTALS $ 23,746,053 $ 64,750,363 $ 78,972,574 $222,269,000 $389,737,990 Current Period gross write offs $ - $ - $ - $ 628,853 $ 628,853 AS OF DECEMBER 2023 2023 2022 2021 PRIOR TOTAL Real Estate - construction Risk Rating Pass $ 1,335,851 $ 6,844,611 $ 17,760,383 $ 2,034,936 $27,975,781 Special Mention - 1,860,136 - - 1,860,136 Substandard - - - - - Doubtful - - - - - Loss - - - - - TOTALS $ 1,335,851 $ 8,704,747 $ 17,760,383 $ 2,034,936 $29,835,917 Current Period gross write offs $ - $ - $ - $ - $ - AS OF DECEMBER 2023 2023 2022 2021 PRIOR TOTAL Real Estate - residential Risk Rating Pass $ 63,654,602 $ 39,455,300 $ 12,324,800 $28,740,891 $144,175,593 Special Mention - - - - - Substandard 1,302,801 127,231 - - 1,430,032 Doubtful - - - - - Loss - - - - - TOTALS $ 64,957,403 $ 39,582,531 $ 12,324,800 $28,740,891 $145,605,625 Current Period gross write offs $ - $ - $ - $ - $ - 31 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, 2024 and 2023, the Company did not modify loans in this manner. OTHER MATTERS Loans to principal officers, directors, and their affiliates were $7,119,277 and $8,822,736 on December 31, 2024 and 2023, respectively. There were no new loans made to such related parties and repayments amounted to $992,608 in 2024. No loans paid off during the year ended December 31, 2024. 5. Premises and Equipment Premises and equipment include the following as of December 31: 2024 2023 Furniture and equipment $ 1,533,495 $ 1,533,495 Leasehold improvements 1,502,983 1,502,983 Software 181,211 181,211 Total Cost 3,217,689 3,217,689 Less accumulated depreciation (2,449,916) (2,338,732) NET BANK PREMISES AND EQUIPMENT $ 767,773 $ 878,957 Depreciation and amortization of Company premises and equipment charged to expense amounted to $111,184 and $144,432 in 2024 and 2023, respectively. AS OF DECEMBER 2023 2023 2022 2021 PRIOR TOTAL Consumer Risk Rating Pass $ 952,759 $ 360,215 $ 18,568,047 $ 6,966,505 $ 26,847,526 Special Mention - - - - - Substandard - - - - - Doubtful - - - - - Loss - - - - - TOTALS $ 952,759 $ 360,215 $ 18,568,047 $ 6,966,505 $ 26,847,526 Current Period gross write offs $ - $ - $ - $ 893,049 $ 893,049 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Other Assets Other Assets include the following as of December 31: 2024 2023 Investment in limited partnership - Small Business Investment Company $ 5,327,098 $ 5,116,803 Investment in limited partnership - Low Income Housing Investment Fund 3,451,779 3,906,469 Accounts receivable 1,950,585 623,055 Interest rate lock commitment 52,867 87,551 Prepaid expenses 1,352,562 1,394,342 Fair value of derivative instruments 3,968,270 5,238,826 Other assets 196,592 1,063,773 TOTAL $16,299,753 $17,430,819 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 fair value 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, 2024, the outstanding commitment was $1,695,985. During the years ended December 31, 2024 and December 31, 2023, the Company had received and paid capital calls of $915,345 and $1,265,649 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 $881,885 as of December 31, 2024. During the years ended December 31, 2024 and December 31, 2023, the Company had received and paid capital calls of $600,625 and $1,070,547, respectively. 7. Deposits The following are time deposits maturing in years ending December 31: 2025 $ 207,261,508 2026 51,958,217 2027 19,438,897 2028 12,278,110 2029 5,015,019 THEREAFTER 651,391 TOTAL $ 296,603,142 Time deposits in denominations that meet or exceed the FDIC minimum limit of $250,000 or more totaled $12,158,420 and $28,147,769 as of December 31, 2024 and 2023, respectively. The Company held related party deposits of $12,157,246 and $10,370,982 as of December 31, 2024 and 2023, respectively. 8. Borrowings and Advances The Company’s borrowings from the Federal Home Loan Bank of Atlanta (FHLB) were $65 million and $35.0 million on December 31, 2024 and 2023, respectively. On December 31, 2024 and 2023, the weighted average rates on FHLB advances were 4.93% and 4.87%, respectively. These advances were secured by a blanket collateral agreement with the FHLB pledging the Company’s portfolio of residential first mortgage loans, commercial real estate loans and investment securities with a collateral value of $153.9 million and $116.7 million, respectively. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FHLB advances are subject to prepayment penalties. During the year ended December 31, 2024 and 2023, 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 $40 million and $20.0 million in callable FHLB advances as of December 31, 2024 and 2023, respectively. The Company’s borrowings from the Federal Reserve Board (FRB) were $0.0 million and $15.0 million as of December 31, 2024 and 2023, respectively. These advances were secured by a blanket collateral agreement with the FRB pledging the Company’s portfolio of commercial loans and investment securities with a collateral value of $78.7 million and $102.9, respectively. Advances from the FHLB and FRB are summarized by year of maturity and weighted average interest rate at December 31, 2024: 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 $0.16 million and $0.27 million on December 31, 2024 and 2023, respectively. The weighted average rate on PPPLF advances was 0.35% as of December 31, 2024 and 2023. 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 $19,850,643 and $19,752,719 for on December 31, 2024 and 2023. AMOUNT WEIGHTED AVERAGE RATE 2025 $ 65,000,000 4.93% 2026 - N/A 2027 - N/A 2028 - N/A 2029 - N/A THEREAFTER - N/A TOTAL $ 65,000,000 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2024 2023 Unfunded commitment in limited partnership - Small Business Investment Company $ 1,695,985 $ 2,606,827 Unfunded commitment in limited partnership - Low Income Housing Investment Fund 881,885 1,482,510 Accrued expenses 1,696,412 1,791,997 Automated Clearing House (ACH) transactions pending 1,446,003 1,404,609 Accounts payable 139,195 82,546 Fair value of derivative instruments 3,038,009 3,789,983 Other liabilities 1,025,429 342,747 TOTAL $ 9,922,918 $ 11,501,219 10. Other Liabilities Other liabilities include the following as of December 31: 11. Income Taxes Year-end deferred tax assets and liabilities were due to the following: 2024 2023 Deferred Tax Assets Allowance for credit losses $ 1,447,670 $ 2,331,454 Unearned loan fees and costs, net 1,598 - Accrued compensation 217,431 247,239 Non-accrual loan interest - - Unrealized losses on securities 5,509,390 5,466,521 Restricted stock 145,248 126,400 Lease liability 446,150 426,796 Tax credits 419,333 - Other 215,020 21,866 8,401,840 8,620,276 Deferred Tax Liabilities Depreciation 129,375 147,991 Unearned loan fees and costs, net - 4,887 Unrealized gains on cash flow hedges 213,707 323,452 Right-of-use asset 415,244 440,406 Interest rate lock 14,810 19,404 Other 68,263 50,296 841,399 986,436 NET DEFERRED TAX ASSET $ 7,560,441 $7,633,840 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income tax expense (benefit) was as follows: 2024 2023 Current tax expense Federal $ 628,129 $ 275,373 State 34,707 51,926 Deferred tax expense (benefit) Federal 160,501 (440,136) State 65,511 (33,456) $ 888,848 $ (146,293) Effective tax rates differ from the federal statutory rate of 21% applied to income before income tax expense due to the following: 2024 2023 Federal statutory rate times financial statement income $1,175,820 $ 456,204 Effect of: State income taxes, net of federal benefit 79,173 14,591 Tax-exempt interest income, net of disallowance (37,976) (40,607) Earnings from bank-owned life insurance (174,149) (190,458) Unrecognized tax benefits, net - - Stock compensation 24,939 (17,204) Low-income housing investment benefit (122,659) (117,038) Other (56,300) (251,781) $ 888,848 $ (146,293) 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, 2020. 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, 2024, 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 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, 2024 Total capital (to risk-weighted assets) Freedom Financial Holdings, Inc. $125,014,845 14.49% $90,583,185 10.50% N/A N/A The Freedom Bank of Virginia $123,807,689 14.35% $90,583,185 10.50% $86,269,700 10.00% Tier 1 capital (to risk-weighted assets) Freedom Financial Holdings, Inc. $99,680,089 11.55% $73,329,245 8.50% N/A N/A The Freedom Bank of Virginia $117,077,252 13.57% $73,329,245 8.50% $69,015,760 8.00% Common Equity Tier 1 (to risk-weighted assets) Freedom Financial Holdings, Inc. $99,680,089 11.55% $60,388,790 7.00% N/A N/A The Freedom Bank of Virginia $117,077,252 13.57% $60,388,790 7.00% $56,075,305 6.50% Tier 1 capital (to adjusted average assets) Freedom Financial Holdings, Inc. $99,680,089 8.84% $45,098,836 4.00% N/A N/A The Freedom Bank of Virginia $117,077,252 10.39% $45,071,232 4.00% $56,339,040 5.00% 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% 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, 2024 and 2023 are as follows: 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2024, $17,592,551 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 $70 million and $50 million as of December 31, 2024 and 2023, respectively, were designated as cash flow hedges on certain brokered deposits and variable rate loans 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 as of December 31, 2024 and 2023, 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, 2024 and 2023 were $23,619,067 and $24,417,499, 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, 2024. (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 2024, the amortized cost basis of the closed portfolios used in these hedging relationships was $75,441,411. Interest income from the fair value hedge was netted against interest expense thus reducing interest expense by $208,738 and $79,933 for the years 2024 and 2023 respectively. 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) 2024 2023 2024 2023 Loans Receivable(a) $ 50,000,000 $ 30,000,000 $ - $ - Brokered Deposits $ (40,000,000) $ (40,000,000) $ - $ - Brokered Time Deposits $ (10,000,000) $ (10,000,000) $ - $ - 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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: 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: For the years ended December 31, 2024 and 2023 there was no gain or loss recognized in income on cash flow hedging relationships. 2024 2023 NOTIONAL AMOUNT FAIR VALUE NOTIONAL AMOUNT FAIR VALUE Included in other assets: Derivatives designated as hedging Instruments: Interest rate swaps related loans receivable Fixed $ - $ - $ 30,000,000 $ 11,278 Interest rate swaps related loans receivable Variable 20,000,000 42,202 - - Interest rate swaps related to brokered deposits 40,000,000 740,302 40,000,000 888,868 Interest rate swaps related to brokered time deposits 10,000,000 167,307 10,000,000 548,697 Derivatives not designated as hedging Instruments: Interest rate swaps related to customer loans 23,619,067 3,038,009 24,417,499 3,789,983 $ 93,619,067 $ 3,987,820 $104,417,499 $ 5,238,826 Included in other liabilities: Derivatives designated as hedging Instruments: Interest rate swaps related loans receivable Fixed $ 30,000,000 $ (19,550) $ - $ - Derivatives not designated as hedging Instruments: Interest rate swaps related to brokered time deposits 23,619,067 3,038,009 24,417,499 3,789,983 $ 53,619,067 $ 3,018,459 $ 24,417,499 $ 3,789,983 2024 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 $ 736,104 N/A $ - 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 $ - 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2024: 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, 2024 and 2023, there was no remaining amortization expense to be recognized on outstanding stock options. The intrinsic value of options exercised during 2024 was $5,324. There were no options exercised in 2023. The weighted average remaining contractual life of options outstanding was 1.43 and 1.64 years for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024 all outstanding options are fully vested. The intrinsic value of these fully vested options on December 31, 2024 was $52,956. The following summarizes the option activity under the Plan: There were no stock options granted during the years ended December 31, 2024 and 2023. 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. During the year ended December 31, 2024, 96,950 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 $10.62 at the date of grant. These restricted shares cliff vest over a three year period based on their date of grant. NUMBER OF SHARES WEIGHTED AVERAGE EXERCISE PRICE BALANCE AT JANUARY 1, 2023 32,446 $ 8.30 Grants - - Exercised - - Expired - - Forfeited - - BALANCE AT DECEMBER 31, 2023 32,446 $ 8.30 Grants - - Exercised 1,575 7.85 Expired 5,908 8.04 Forfeited - - BALANCE AT DECEMBER 31, 2024 14,963 $ 8.61 AUTHORIZED GRANTED CANCELLED 2007 Plan 1,075,280 1,400,112 378,473 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 2024, there was $745,319 in unrecognized compensation expense related to non-vested restricted stock awards that are expected to be recognized over a weighted average period of 2.78 years. At December 31, 2023, there was $665,940 in unrecognized compensation expense related to non-vested restricted stock awards. The following summarizes the restricted stock activity under the Plan: For the years ended December 31, 2024 and 2023, the Company recognized $685,682 and $791,304 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 mortgage operations facilities. The Company’s leases have remaining terms ranging from eleven months to one hundred and three 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, 2024 DEC. 31, 2023 Right-of-use assets: Operating leases Right-of-use asset $ 1,874,403 $ 1,987,075 Lease liabilities: Operating leases Lease liability $ 2,013,912 $ 1,925,671 NUMBER OF SHARES WEIGHTED AVERAGE FAIR VALUE BALANCE AT JANUARY 1, 2022 72,069 $12.36 Grants 71,352 14.67 Vested (48,760) 12.79 Expired - - Forfeited (5,668) 14.07 BALANCE AT DECEMBER 31, 2022 88,993 $13.86 Grants 96,950 10.62 Vested (47,212) 12.66 Expired - - Forfeited (20,699) 13.01 BALANCE AT DECEMBER 31, 2023 118,032 $11.83 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Lease Expense The components of total lease cost were as follows for the period ending: DECEMBER 31, 2024 DECEMBER 31, 2023 Operating lease cost $ 606,201 $ 712,873 Lease Obligations Future undiscounted lease payments for operating leases with initial terms of one year or more as of December 31, 2024 are as follows: Supplemental Lease Information DECEMBER 31, 2024 DECEMBER 31, 2023 Operating lease weighted average remaining lease term (years) 5.58 5.85 Operating lease weighted average discount rate 2.15% 1.15% 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: OPERATING LEASE 2025 $ 731,757 2026 250,298 2027 256,584 2028 263,030 2029 261,083 THEREAFTER 766,135 Total undiscounted lease payments 2,528,887 Less: imputed interest 514,975 Net lease liabilities $ 2,013,912 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INVESTMENT SECURITIES: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded, values debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). INTEREST RATE LOCK COMMITMENT (IRLC): The 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: FAIR VALUE QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1) SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2) SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) 2024 Available-for-sale securities $209,687,859 $ - $209,187,859 $ 500,000 Interest rate lock commitment 52,867 - - 52,867 Cash flow derivatives 949,811 - 949,811 - Fair value derivatives (19,550) - (19,550) - Servicing rights asset 152,479 - 152,479 - $210,823,466 $ - $210,270,599 $ 552,867 2023 Available-for-sale securities $211,263,518 $ - $210,763,518 $ 500,000 Interest rate lock commitment 87,551 - - 87,551 Cash flow derivatives 1,437,565 - 1,437,565 - Fair value derivatives 11,278 - 11,278 - Servicing rights asset 196,317 - 196,317 - $212,996,229 $ - $212,408,678 $ 587,551 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FAIR VALUE QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1) SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2) SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) 2024 Individually evaluated loans Commercial and industrial $ 550,874 - - $ 550,874 2023 Individually evaluated loans Commercial and industrial $ 1,525,525 - - $ 1,525,525 Real estate - commercial $ 2,500,000 - - $ 2,500,000 The following table represents recurring level III assets: 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: AVAILABLE-FOR-SALE SECURITIES INTEREST RATE LOCK COMMITMENT BALANCE AT JANUARY 1, 2023 $ 500,000 $ 49,351 Realized and unrealized gains included in earnings - 38,200 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, 2023 $ 500,000 $ 87,551 Realized and unrealized gains included in earnings - (34,684) 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, 2024 $ 500,000 $ 52,867 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 LEVEL 3 INSTRUMENTS ONLY FAIR VALUE VALUATION TECHNIQUES UNOBSERVABLE INPUTS RANGE (WEIGHTED- AVERAGE) Loans - Commercial and Industrial $ 550,874 Market Approach Adjustment for differences between comparable sales 10%-50% (25%) DECEMBER 31, 2023 LEVEL 3 INSTRUMENTS ONLY FAIR VALUE VALUATION TECHNIQUES UNOBSERVABLE INPUTS RANGE (WEIGHTED- AVERAGE) Loans - Commercial and Industrial $ 1,525,525 Market Approach Adjustment for differences between comparable sales 10%-50% (25%) Loans - Real estate - Commercial $ 2,500,000 Consensus asset sale pricing Adjustment for differences between comparable estate sales 6%-10% (8%) 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: 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. 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2024 USING CARRYING AMOUNT LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Financial assets Cash and due from banks $ 5,685,008 $ 5,685,008 $ - $ - $ 5,685,008 Interest bearing deposits with banks Securities available-for-sale 23,004,874 23,004,874 - - 23,004,874 Securities held-to-maturity 209,687,859 - 209,187,859 500,000 209,687,859 Loans held for sale 20,315,651 - 18,230,385 - 18,230,385 Loans receivable, net 5,963,969 - 6,016,836 - 6,016,836 Accrued interest receivable 761,362,787 - - 755,320,000 755,320,000 Interest rate lock commitment 4,155,077 4,155,077 - - 4,155,077 Cash flow derivative 52,867 - 52,867 - 52,867 Fair value derivative 949,811 - 949,811 - 949,811 TOTAL FINANCIAL ASSETS $1,031,177,903 $32,844,959 $234,437,758 $755,820,000 $1,023,102,717 Financial liabilities Demand deposits $ 612,928,552 $ 612,928,552 $ - $ - $612,928,552 Time deposits 296,603,142 - 297,218,000 - 297,218,000 Borrowings 65,000,000 - 64,777,626 - 64,777,626 PPP liquidity facility advances - - - - - Subordinated debt, net of issuance costs 19,850,643 - 17,014,780 - 17,014,780 Accrued interest payable 2,445,742 2,445,742 - - 2,445,742 Accrued interest payable 19,550 - 19,550 - 19,550 TOTAL FINANCIAL LIABILITIES $ 996,847,629 $ 615,374,294 $379,029,956 $ - $994,404,250 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. 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 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. 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 211,263,518 - 210,763,518 500,000 211,263,518 Securities held-to-maturity 20,114,269 - 17,611,533 - 17,611,533 Loans held for sale 6,663,929 - 6,751,480 - 6,751,480 Loans receivable, net 759,224,546 - - 757,572,000 757,572,000 Accrued interest receivable 3,721,730 3,721,730 - - 3,721,730 Interest rate lock commitment 87,551 - - 87,551 87,551 Cash flow derivative 11,278 - 11,278 - 11,278 Fair value derivative 1,437,565 - 1,437,565 - 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 $667,416,278 $667,416,278 $ - $ - $667,416,278 Time deposits 253,641,860 - 256,759,000 - 256,759,000 Borrowings 50,000,000 - 49,753,172 - 49,753,172 PPP liquidity facility advances 270,576 - 270,576 - 270,576 Subordinated debt, net of issuance costs 19,752,719 - 16,231,007 - 16,231,007 Accrued interest payable 2,842,646 2,842,646 - - 2,842,646 TOTAL FINANCIAL LIABILITIES $993,924,079 $670,258,924 $323,013,755 $ - $993,272,679 2024 2023 Commitments to extend credit $ 133,109,353 $ 139,340,178 Standby letters of credit $ 960,818 $ 4,796,487 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 $312,031 and $306,755 for the years ended December 31, 2024 and 2023, 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, 2023 $(18,993,006) $1,879,619 $(17,113,387) Unrealized losses net of tax of ($47,579) 163,881 - 163,881 Reclassification for gains on sales net of tax - - - Unrealized gain on cash flow derivative, net of tax of ($176,194) - (765,509) (765,509) BALANCE AT DECEMBER 31, 2023 $(18,829,125) $1,114,110 $(17,715,015) Unrealized losses net of tax of ($42,869) (147,660) - (147,660) Reclassification for gains on sales net of tax - - - Unrealized gain on cash flow derivative, net of tax of ($109,744) - (378,008) (378,008) BALANCE AT DECEMBER 31, 2024 $(18,976,785) $736,102 $(18,240,683) 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 2024 Unrealized gains and losses on available-for-sale securities Realized gains on securities available-for-sale $ - Gain on Sale of Investment Securities Credit loss expense - N/A Total before tax - Tax effect - Income Tax Expense Net of Tax $ - 2023 Unrealized gains and losses on available-for-sale securities Realized gains on securities available-for-sale $ - Gain on Sale of Investment Securities Credit loss expense - N/A Total before tax - Tax effect - Income Tax Expense Net of Tax $ - 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 20. Related Party Transactions For the years ended December 31, 2024 and 2023, 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. The Company-paid no fees directly for the years ended December 31, 2024 and 2023. 21. Parent Company Condensed Financial Information BALANCE SHEETS As of December 31 2024 2023 ASSETS Cash $ 1,309,401 $ 65,035 Investment in Bank Subsidiary 98,989,082 96,177,602 Other Assets 1,338,339 878,409 TOTAL ASSETS $101,636,822 $ 97,121,046 LIABILITIES Subordinated Debt (net of issuance costs) $ 19,850,643 $ 19,752,719 Other Liabilities 346,739 140,273 Total Stockholders' Equity 81,439,440 77,228,054 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $101,636,822 $ 97,121,046 STATEMENT OF OPERATIONS Years Ended December 31 2024 2023 Interest Income - - Total Interest Income $ - $ - Interest Expense 777,922 777,925 Total Interest Expense $ 777,922 $ 777,925 Total Interest Income (Loss) $ (777,922) $ (777,925) Non-Interest Income - - Total Non-interest Income $ - $ - Non-Interest Expenses 1,351,020 1,117,721 Income (loss) before income tax and undistributed net income of bank subsidiary $ (2,128,942) $ (1,895,646) Income tax benefit 447,078 398,086 Income (loss) before undistributed net income of bank subsidiary $ (1,681,864) $ (1,497,560) Equity in undistributed net income of bank subsidiary 6,392,115 3,816,257 NET INCOME $ 4,710,251 $ 2,318,697 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STATEMENTS OF CASH FLOWS Years Ended December 31 2024 2023 OPERATING ACTIVITIES Net income $ 4,710,251 $ 2,318,697 Equity in undistributed net income of bank subsidiary (6,392,115) (3,816,257) Adjustments to reconcile net income to net cash provided by Operating Activities 97,924 77,925 Share-Based Compensation 685,682 791,304 Decrease/(increase) in: Intercompany Receivable - - Income Tax Receivable (447,078) (398,086) Other Assets (12,852) (31,581) Increase (decrease) in: Intercompany Payable (65,842) (483,586) Accrued Interest Payable - - Other Liabilities 184,290 25,951 Net Cash Provided by Operating Activities $ (1,239,740) $ (1,515,633) INVESTING ACTIVITIES Investment in Subsidiaries 3,055,000 1,600,000 Net Cash Used in Investing Activities $ 3,055,000 $ 1,600,000 FINANCING ACTIVITIES Proceeds from Subordinated Debt, Net of Issuance Costs - - Proceeds from Stock Options 12,348 - Repurchase of Common Stock (583,242) (712,560) Net cash Provided by Financing Activities $ (570,894) $ (712,560) Net Increase (Decrease) in Cash and Cash Equivalents 1,244,366 (628,193) Cash and Cash Equivalents, Beginning of Year 65,035 693,228 Cash and Cash Equivalents, End of Year $ 1,309,401 $ 65,035 22. Subsequent Events The Company conducts its business activities through community banking. Community banking revolves around serving the community and customers where the bank has branches and offices. Community banking consists of lending, depository, and trust relationships. The Company’s chief executive officer is in charge of allocating the Company’s resources and assessing the Company’s performance, and as such, has been identified as the chief operating decision maker. The chief operating decision maker regularly reviews a multitude of reports that have a varying level of combined detail on products offered, however, all of the information and activity reviewed fall under the definition of community banking. Based on the business activities and information reviewed by the chief operating decision maker, the Company has one reportable segment - Community Banking. The accounting policies of the community banking segment are the same as those for the Company described in Note One. In accordance with ASC 280, the Company has concluded that consolidated net income is the measure of segment profit or loss 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS that is required to be reported because it is the measure determined in accordance with measurement principles that are most consistent with US GAAP. As the Company only has one reportable segment, total segment net income and total segment assets are equivalent to the results disclosed in the accompanying Consolidated Statements of Income (reported as “Income Available to Common Shareholders” and Consolidated Balance Sheets (reported as “Total Assets”), respectively. 23. Subsequent Events The date to which events occurring after December 31, 2024, the date of the most recent balance sheet, have been evaluated for possible adjustments to the financial statements or disclosure is March 14, 2025, which is the date on which the financial statements were available to be issued. 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BOARD OF DIRECTORS SHAREHOLDER & COMPANY INFORMATION CYNTHIA CARTER ATWATER DIRECTOR H. JASON GOLD CHAIRMAN JOHN T. ROHRBACK VICE CHAIRMAN JOSEPH M. ENGLISH III DIRECTOR BRANDON C. PARK DIRECTOR MAURY PEIPERL DIRECTOR JOSEPH J. THOMAS PRESIDENT & CEO DIRECTOR EXECUTIVE OFFICERS & SENIOR LEADERSHIP TEAM RICHARD A. HUTCHISON EXECUTIVE VICE PRESIDENT & CHIEF MORTGAGE OFFICER SHAUN E. MURPHY SENIOR EXECUTIVE VICE PRESIDENT & CHIEF OPERATING OFFICER AND CHIEF RISK OFFICER MARC TOHIR EXECUTIVE VICE PRESIDENT & HEAD OF COMMERCIAL BANKING VICTORIA S. LOUCKS EXECUTIVE VICE PRESIDENT & HEAD OF DEPOSIT PRODUCTS 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SENIOR LEADERSHIP SHAREHOLDER & COMPANY INFORMATION DORIS HAMBRIGHT HR DIRECTOR JAMIE ADKINS SENIOR MORTGAGE OPERATIONS OFFICER TUNG DAO CHIEF CREDIT OFFICER KATHLEEN JOHNSON CHIEF MARKETING OFFICER ERIN MOORE HEAD OF LOAN OPERATIONS THYDA PRICE COMPLIANCE DIRECTOR DAVID SANDERS ACTING CHIEF FINANCIAL OFFICER & CHIEF ACCOUNTING OFFICER FLORANTE SANTOS CHIEF TECHNOLOGY OFFICER GABRIELLE SENG BRANCH BANKING MANAGER RAZ SOFY CONTROLLER TONY DENK DIRECTOR OF MORTGAGE PRODUCTION & SALES SOPA KEO DIRECTOR OF DEPOSIT SERVICES 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ADVISORY BOARD SHAREHOLDER & COMPANY INFORMATION SCOTT COSBY PRESIDENT, AGILIKO JEFFERY PAYNE CHIEF EXECUTIVE OFFICER, COVEROS, INC. JOE MEYER EXECUTIVE DIRECTOR & CEO, SHELTER HOUSE DAMON SMITH CHIEF EXECUTIVE OFFICER, BIGEYE DIRECT, INC. MARK INGRAO PRESIDENT, ASPEN STRATEGIES, LLC NAG NELLURI CHIEF EXECUTIVE OFFICER, DATAMAXIS CHARLIE EINSMANN PRINCIPAL, CLEAR SKY FINANCIAL MITCHELL LAHR PRESIDENT & CEO, CAREY INTERNATIONAL, INC. 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 NOVA Freedom Fund provides financing and technical assistance to underrepresented entrepreneurs in the DC Region. Since 2021, the Foundation, through the help of the Community Business Partnership (CBP), has provided capital and assistance to twelve local entrepreneurs. Today, the Foundation has raised over $350,000 and looks forward to using the funding to assist even more businesses by forging a new partnership with the Latino Economic Development Center (LEDC) in 2024. 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 President & CEO, Joe Thomas, presenting at the 2024 Freedom Bank Foundation Gala 55 SHAREHOLDER & COMPANY INFORMATION SERVING OUR COMMUNITIES Business Banking • Personal Banking • Mortgage Banking Here are some of the dynamic organizations across many industries that we’ve assisted in 2024: Lots of banks say they’re different. We actually are! Our IDEAS Make the Difference Putting our IDEAS to work when you need us most. $10,000,000 Fund Line of Credit $1,500,000 Line of Credit to Support Working Capital $12,000,000 Delayed Draw Term Loan $500,000 Tax-Exempt Bond Financing $8,125,000 Commercial Real Estate Purchase $1,048,452 Residential Investment Property Purchase Call 703-242-5300 or visit freedom.bank/ideas. $3,200,000 Revolving Line of Credit for Nutrient Bank $1,500,000 Line of Credit and Vehicle Guidance Line $10,000,000 Term Loan 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 and will be held on Tuesday, May 6, 2025 at 4 pm at: Westwood Country Club 800 Maple Ave. East Vienna, VA 22180 A cocktail hour will follow the meeting and will start at 5 pm. 00 DFDDF OTCQX : FDVA freedom.bank MORTGAGE DIVISION 4090 Lafayette Center Drive, Suite B Chantilly, VA 20151 703-766-6400 CHANTILLY 4090 Lafayette Center Drive, Suite B Chantilly, VA 20151 571-395-4000 FAIRFAX 10555 Main Street, Suite 100 Fairfax, VA 22030 703-667-4167 MANASSAS 10611 BaIls Ford Road, Suite 110 Manassas, VA 20109 703-349-2210 RESTON 11700 Plaza America Drive, Suite 110 Reston, VA 22190 703-663-2300 VIENNA 502 Maple Avenue West Vienna, VA 22180 703-667-4170

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