presentation to investors may 13, 2019 · shaun e. murphy - chief operating and credit officer -...

Presentation to InvestorsMay 13, 2019

Joseph J. Thomas – President and CEO

· f r e e d o m b a n k v a . c o m ·

2

This presentation contains forward-looking statements, including our expectations with respect to future events that are subject to various risks and uncertainties. Factors that could cause actual results to differ materially from management's projections, forecasts, estimates, and expectations include: fluctuation in market rates of interest and loan and deposit pricing; adverse changes in the overall national economy, as well as adverse economic conditions in our specific market areas; maintenance and development of well-established and valued client relationships and referral source relationships; and acquisition or loss of key production personnel. Other risks that can affect the Bank are detailed from time to time in our quarterly and annual reports filed with the Federal Financial Institutions Examination Council. We caution readers that the list of factors above is not exclusive. The forward-looking statements are made as of the date of this presentation, and we may not undertake steps to update the forward-looking statements to reflect the impact of any circumstances or events that arise after the date the forward-looking statements are made. In addition, our past results of operations are not necessarily indicative of future performance.

Disclosure

· f r e e d o m b a n k v a . c o m · 2

3

Agenda


Investment Summary

Company Overview

Financial Results

4

Company Overview


5

Introducing New Brand Promise


The above advertisement ran as a half-page ad in the Washington Business Journal's January 25, 2019 publication.

6

Vision

• Provide compelling ideas, relevant financial products, and exceptional service to our clients in the way they wish to be served.

• Focus on building lead relationships with businesses, real estate owners, and professionals with sales offices across Northern Virginia/DC MSA.

• Concentrate on industry verticals to deliver unique, sector-specific solutions and have market executives to engage local businesses and communities.

• Use innovative technology, network of sales offices and a team of experienced bankers to make banking functional and convenient for businesses and consumers.

Values

• Freedom Bank’s innovative approach to banking starts with IDEAS based upon a keen understanding of client needs and market opportunities.

Innovate – Exhaust all options and take smart risks

Discipline – Take action with unwavering integrity

Experience – Deliver exceptional customer 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.

Vision - “Experience Innovation, Bank with Freedom”


7

In 2018, we made huge strides to invest in our people and technology in order to position our company for improved financial results going forward.

• Refreshed Board of Directors – Elected a new Chairman, H. Jason Gold, and added two new Directors, Brandon Park and Lauren McKelvey, with experience,

domain knowledge, and local network of clients

– Retirement of six board members provided the Board’s Corporate Governance and Nominating Committee an opportunity to evaluate and select new Board candidates in the coming months

• Revamped Management Team– Elected Joseph J. Thomas new President and Chief Executive Officer and appointed Shaun Murphy as new Chief Operating Officer

– Following departure of legacy Chief Credit Officer and Chief Compliance Officer, implemented a new management organization toimprove effectiveness and conducted a talent review and workflow analysis to identify cost-savings opportunities

– Conducted employee survey and staffed five employee-led committees to address culture, capacities, clients, costs, and communities in order to improve employee engagement

• Invested in Leading Digital Technology– Redesigned the Bank’s website that enhances our branding, improves marketing, and enables digital access to the bank

– Launched a new residential mortgage online application system to enable digital process for mortgage and home equity lines

– Contracted with best-in-class online banking provider to upgrade client functionality and digital experience (Q 2 implementation)

– Restructured contracts with the Bank’s outsourced network provider and our core service provider

– Enhanced our internal technology for credit approvals and asset liability management


Creating a New Freedom Bank

8

Executive Management


Raj Mehra - Executive Vice President & Chief Financial Officer - For many years Mr. Mehra was CFO of Middleburg Financial Corp., the holding company for Middleburg Bank. Previously, he served as director of financial risk management at PricewaterhouseCoopers, and held positions at JP Morgan Chase and Credit Suisse. Mehra received his bachelor’s degree from the Indian Institute of Technology, and holds two graduate degrees, including an MBA from the University of Massachusetts. He is a member of the American Bankers Association’s Accounting Committee and the AICPA's Depository Institution Expert Panel.

8

Shaun E. Murphy - Chief Operating and Credit Officer - Mr. Murphy has over 25 years of national and international experience in financial services leadership. He was most recently SEVP and Chief Credit & Risk Officer at City First Bank in Washington DC since 2015. Prior to that, he served as Chief Risk Officer of H Bancorp where he was responsible for all risk and compliance activities and served on the Board of Directors of Bay Bancorp and its bank subsidiary, Bay Bank. Prior to H Bancorp, Mr. Murphy served as Managing Director of Hovde Private Equity Advisors, LLC where he was responsible for risk and due diligence activities surrounding strategic bank investments.

Joseph J. Thomas – President and CEO - Mr. Thomas was appointed in August, 2018. He was previously President and CEO of Bay Bancorp (NASDAQ: BYBK), a community bank with $700 million in total assets based in Columbia, Maryland, before its successful sale to Old Line Bancshares. He was formerly Managing Director of Hovde Private Equity Advisors and had a distinguished 20+ year banking career with Wachovia Corporation, most recently as Managing Director and Head of Financial Institutions Investment Banking. Mr. Thomas holds a BA from the University of Virginia and an MBA from Fuqua School of Business at Duke University.

Experienced Management Team

Executive Management (Continued)


Richard A. Hutchison - Executive Vice President & Chief Mortgage Officer - Mr. Hutchison was previously with Virginia Heritage Bank, which was successfully sold to Eagle Bank in October 2014, as a Senior Executive Officer and the Chief Mortgage Officer responsible for all mortgage loan production and first trust mortgage origination. Prior to Virginia Heritage Bank, Hutchison was a Senior Executive Officer with Community Bank of Northern Virginia, which was sold to Mercantile and PNC. Hutchison is a native of Western Fairfax County and has been in local community banking for 42 years.

Kathleen S. Croson - Executive Vice President, Chief Banking Officer - Ms. Croson began her career at First Virginia Bank. She served in various capacities of increasing responsibility at Middleburg Bank for 18 years. Ms. Croson was a branch manager, led retail and consumer banking operations and most recently served as Middleburg’s senior vice president of client services. Ms. Croson has a bachelor’s degree from George Mason University and has served in a number of industry association positions.

9

10

H. Jason Gold - Chairman - Mr. Gold has served as a director of the Bank since May 2003. Mr. Gold is a partner in Nelson Mullins Riley & Scarborough LLP’s Washington D.C. office, where he focuses his practice on bankruptcy, financial restructuring, and liquidations. He has served as a bankruptcy trustee for more than 25 years and has more than 30 years experience in complex restructuring and insolvency matters in various industries. He also serves as a bankruptcy examiner and federal and state-appointed receiver. Mr. Gold served as a partner with the Firm of Wiley Rein LLP, McLean, Virginia from 2002 until 2014.


Board of Directors

10

Cynthia Carter Atwater - Ms. Atwater has served as a director of the Bank since 2003 and is the Corporate Secretary. Ms. Atwater is a Principal of Digital Benefit Advisors, Reston, Virginia and was formerly President and Chief Executive Officer of CCA Consulting, Inc., Reston, Virginia. Ms. Atwater served on the Advisory Board of the Bank as both Chairman and Vice Chairman until 2003.

John T. Rohrback - Vice Chairman - Mr. Rohrback has served as a director of the Bank since August 2004 and served as Chief Executive Officer from 2004 to 2011. He was hired in 2001 as Executive Vice President and Senior Lending Officer. Mr. Rohrback was President and Chief Executive Officer, as well as a director of Heritage Bank from 1996 until 1999. Prior to this, Mr. Rohrback was Executive Vice President, as well as a director of Hallmark Bank and Trust until its acquisition by F & M National Corporation in 1996.

Joseph M. English III – Mr. English III has over thirty years of experience as a Certified Public Accountant, registered investment advisor, and personal financial specialist. Joe began his accounting career in 1988 and became a partner at Burdette Smith and Bish LLC in 1998. Mr. English’s focus is on financial reporting, audits, reviews, compilations, tax planning,and compliance for individuals and businesses. He earned a Bachelor of Science in Accounting from Wheeling Jesuit University in Wheeling, West Virginia.

Kevin J. Kooman – Mr. Kooman has over 20 years of investment banking and financial management experience. He is a partner in the private equity firm, Patriot Financial Partners, L.P. Prior to joining Patriot, Kevin served as a Vice President of Investment Banking at Janney Montgomery Scott LLC in the firm’s Financial Institutions Group. He has previously held the positions of Divisional Controller and Manager of Financial Operations at CIGNA Corp and at ACE Limited. He began his career as a CPA in the Philadelphia Office of Arthur Andersen LLP.

11

Board of Directors (Continued)


Maury Peiperl – Mr. Peiperl is the Dean of the George Mason University School of Business. Prior to joining George Mason University, he was Director (Dean) of Cranfield School of Management, one of the UK’s leading business schools. Previously, he was Professor of Leadership at IMD in Switzerland, and a professor at the London Business School, where he co-founded the pioneering EMBA-Global. He holds several academic degrees including a BS in Engineering from Princeton University, a Masters of Business Administration, Master of Arts and a PhD from Harvard University.

Lauren Friend McKelvey - Ms. McKelvey has served as a director of the Bank since 2018. She is a partner in the prominent Northern Virginia law firm Odin Feldman Pittleman where she frequently litigates commercial matters, intellectual property disputes, and other business matters in state and federal court. She also crafts and negotiates financing and technology agreements for her clients. Her experience extends as well to the representation of financial fiduciaries and banks.

Brandon C. Park - Mr. Park has served as a director of the Bank since April 2018. He founded Superlative Technologies, Inc. (SuprTEK) in 1996 and manages corporate direction and strategy, guiding the growth of the organization from startup to the current projected annual revenue of $40+ million for 2018. SuprTEK has been recognized by industry, Congress, and Government Customers for excellence through innovative solutions. Mr. Park earned his Bachelor of Science degree in Finance from Virginia Polytechnic Institute and State University, and currently serves as SuprTEK’s CEO.

Joseph J. Thomas – President and CEO - See biography on prior slides..

3

Deposit Market Share


2019 Sales Office Footprint

Franchise Overview

WASHINGTON-ARLINGTON-ALEXANDRIA, DC-VA-MD-WV

(Virginia domiciled banks)

2018 Rank Institution

# of Branches

Total Deposits

($000)Market Share

1 Burke & Herbert Bank & Trust Co. 25 2,329,599 0.42%

2 Sonabank 49 1,989,387 0.36%

3 FVCbank 11 1,153,050 0.21%

4 John Marshall Bank 7 976,132 0.18%

5 MainStreet Bank 6 803,223 0.15%

6 Chain Bridge Bank NA 1 780,753 0.14%

7 First Bank 15 697,658 0.13%

8 Bank of Clarke County 13 683,712 0.12%

9 Fauquier Bank 11 566,145 0.10%

10 Freedom Bank of Virginia 4 434,311 0.08%

11 Virginia Community Bank 7 221,163 0.04%

12 Oak View National Bank 3 193,378 0.03%

13 Old Dominion National Bank 4 158,631 0.03%


Freedom Bank’s Market Position

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

Arlington County Fairfax County Loudoun County Prince William County Washington DC

Freedom Bank Total Deposits & Loans by County

Total Deposit Balance Total Loan Balance

Source: Freedom Bank

Source: Census.Gov

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Arlington County Fairfax County Loudoun County Prince William County Washington DC

Total Number of Businesses by County

14

Commercial Banking

• Seasoned team of Commercial Bankers

• Broad focus across the C & I, Business Banking, and Commercial Real Estate markets

• Robust Cash Management platform including remote deposit capture

Community Banking

• 4 sales-office network in Northern Virginia market

• Solid core deposit base (75.25% of total deposits as of Mar. 31, 2019)

• Strong business banking franchise (3.42% NIM as of Mar. 31, 2019)

Mortgage Banking

• Significant purchase money volume (80%+) in affordability niche

• Loan production for FY 2018 totaled $120.5 million

• Extensive product offering, including VA, FHA, VHDA, and USDA

Financial Services

• Merchant Services

• Payroll & Benefits

• Business Credit Card

Comprehensive & Diverse Business Units


15

Financial Results


16

• Freedom Bank completed a bank-wide reorganization and balance sheet repositioning in order to improve financial results, mitigate risk, and grow the value of the Bank. These actions resulted in the following outcomes:

– We reduced interest rate risk by restructuring the investment portfolio and selling low-yielding, long-duration municipal bonds.

– The Bank deployed excess liquidity into reducing higher-cost non-core deposit concentrations and wholesale borrowings, as well as funding tax-advantaged bank-owned life insurance.

– We lowered compensation costs through workforce restructuring, which resulted in severance expenses, and will improve our efficiency ratio going forward.

– The Bank invested in digital technologies and management information systems through changes in vendor contracts that did necessitate contract terminations in order to get better services at lower costs.

– The Bank recognized additional loan loss provision of $406,000 in the fourth quarter of 2018 following a rigorous and independent review of the entire loan portfolio.

• We completed all of this and the Bank’s book value per share at December 31, 2018 increased modestly to $8.47; and our balance sheet was strengthened with total capital ratio of 15.85% and allowance for loan and lease losses at 1.15% of total loans.

• More importantly, we believe the Bank is well positioned for sustained growth in profitability in 2019.


Restructuring in 2018

17

• Highlights of the first quarter

– Return on Average Assets (“ROAA”) was 0.43% for the quarter ended March 31, 2019 compared to 0.01% for the previous quarter and 0.24% for the quarter ended March 31, 2018

– Return on Average Equity (“ROAE”) was 3.51% for the quarter ended March 31, 2019 compared to 0.10% for the previous quarter and 2.24% for the same period in 2018

– The net interest margin was 3.42% for the quarter, higher by 4 basis points compared to the previous quarter and by 12 basis points compared to the same quarter in 2018

– Non-interest income increased by 27.92% compared to the previous quarter, and by 41.54% compared to the same period in 2018, primarily due to higher revenue from the sale of mortgage loans and income from Bank-Owned Life Insurance (“BOLI”)

– Non-interest expenses decreased by 2.04% and by 2.48% compared to the previous quarter and the same period in 2018, respectively. Professional fees were also lower by 32.47% compared to the previous quarter, and by 48.80% compared to the same period in 2018

– The Efficiency Ratio was 86.83% for the quarter ended March 31, 2019 compared to 91.67% for the previous quarter and 93.15% for the same period in 2018

– Total assets were $477.90 million on March 31, 2019, relatively unchanged compared to December 31, 2018

– Total deposits decreased by $5.50 million or by 1.37% since December 31, 2018, primarily due to runoff in high cost interest-bearing deposits. Non-interest bearing demand deposits increased by $5.77 million during the quarter to $72.8 million, and comprised 18.41% of total deposits at March 31, 2019

– Asset quality remains strong with the ratio of non-performing assets to total assets at 0.62% as of March 31, 2019 compared to a ratio of 0.69% as of December 31, 2018


Financial Results for Q1 2019

Appendix:

Recent Financial Highlights


Financial Highlights

Highlights ($ in thousands)FY FY Qtr Qtr Qtr

Dec-17 Dec-18 Mar-18 Dec-18 Mar-19

Balance Sheet

Total Assets $533,122 $478,815 $511,192 $478,815 $477,902

Gross Loans HFI $407,333 $394,080 $396,454 $394,080 $377,459

Total Deposits $465,981 $400,732 $444,471 $400,732 $395,227

Capital Ratios (%)

Tier 1 RBC Ratio 13.32% 14.73% 13.87% 14.73% 15.28%

CET1 Ratio 13.32% 14.73% 13.87% 14.73% 15.28%

Leverage Ratio 10.19% 12.15% 10.64% 12.15% 12.61%

Asset Quality (%)

NPAs/Assets 0.14% 0.71% 0.12% 0.71% 0.62%

NCOs/Average Loans 0.00% 0.09% 0.01% 0.03% 0.02%

ALLL/Loans HFI 1.12% 1.15% 1.14% 1.15% 1.19%

Profitability

ROAA 0.55% 0.04% 0.24% 0.01% 0.43%

ROAE 5.32% 0.34% 2.24% 0.10% 3.51%

Net Interest Margin 3.50% 3.38% 3.30% 3.38% 3.42%

Non Interest Income/Total Revenue 20.38% 11.71% 13.55% 15.00% 19.10%

Efficiency Ratio 77.53% 97.21% 93.15% 91.83% 86.83%

19

Income Statement - GAAP


Income Statement History - GAAP - As Reported ($ in thousands)

FY FY Qtr Qtr Qtr

Dec-17 Dec-18 Mar-18 Dec-18 Mar-19

Net Interest Income (before provision) $18,127 $17,567 $4,340 $4,267 $4,078

Provision for Loan Losses ($30) ($406) $0 ($406) $0

Non-Interest Income $4,640 $2,329 $680 $753 $963

Non-Interest Expense $17,652 $19,341 $4,631 $4,610 $4,516

Pre-tax Net Income $5,085 $149 $389 $4 $525

After-tax Net Income $2,695 $191 $308 $15 $516

Basic EPS $0.41 $0.03 $0.05 $0.00 $0.07

ROAA 0.52% 0.04% 0.24% 0.01% 0.43%

ROAE 5.02% 0.34% 2.24% 0.10% 3.51%

20

Core Net Income – Non GAAP


Income Statement History ($ thousands)

FYDec-17

FYDec-18

QtrMar-18

QtrDec-18

QtrMar-19

GAAP Pre-tax Net Income $5,085 $149 $389 $4 $525

Add Back - Provision for Loan Losses $30 $406 $0 $406 $0

GAAP Pre-tax, Pre-provision Net Income $5,115 $555 $389 $410 $525

Add Back Extraordinary Items

Loss on Sale of Municipal Bonds $0 $1,181 $0 $0 $0

Severance $0 $480 $0 $176 $175

Legal Fees $0 $390 $0 $145 $0

Accounting Restatement $0 $262 $262 $0 $0

Vendor Contract Payments $0 $63 $0 $63 $0

Total Extraordinary Items $0 $2,376 $262 $384 $175

Core Pre-tax, Pre-provision Net Income $5,115 $2,931 $651 $794 $700

Core Pre-tax Net Income $5,085 $2,525 $651 $388 $700

Core After-Tax Net Income $3,458 $2,138 $527 $314 $567

Metrics

Basic EPS $0.53 $0.32 $0.08 $0.04 $0.08

ROAA 0.67% 0.42% 0.41% 0.25% 0.48%

ROAE 6.48% 3.76% 3.83% 2.14% 3.86%

Balance Sheet


Balance Sheet History ($ in thousands)

FY FY FY Qtr Qtr Qtr

Dec-16 Dec-17 Dec-18 Mar-18 Dec-18 Mar-19

Assets

Cash and Fed Balances $29,717 $35,228 $15,647 $30,253 $15,647 $15,602

Investments $47,828 $76,859 $51,280 $76,131 $51,280 $57,218

Total Loans $415,052 $415,105 $398,496 $401,500 $398,496 $388,021

Allowance for Loan Losses ($4,150) ($4,562) ($4,572) ($4,508) ($4,572) ($4,509)

Other Assets $8,440 $10,492 $17,964 $7,816 $17,964 $21,571

Total Assets $496,887 $533,122 $478,815 $511,192 $478,815 $477,902

Liabilities

Non Interest Bearing Deposits $62,941 $69,942 $67,013 $69,129 $67,013 $72,779

Interest Checking Deposits $8,533 $5,450 $8,252 $6,974 $8,252 $8,031

Savings and Money Market $108,937 $181,095 $123,175 $179,543 $123,175 $115,970

Retail Time Deposits $156,206 $177,902 $169,985 $164,271 $169,985 $165,596

Wholesale Time Deposits $62,774 $31,591 $32,307 $24,554 $32,307 $32,841

Total Deposits $399,392 $456,981 $400,732 $444,471 $400,732 $395,227

FHLB Borrowings $43,714 $10,428 $17,143 $10,286 $17,143 $17,000

Other Liabilities $1,774 $1,419 $1,826 $1,598 $1,826 $5,390

Total Liabilities $444,880 $477,828 $419,701 $456,355 $419,701 $417,617

Equity

Retained Earnings $3,760 $2,561 $2,752 $2,870 $2,752 $3,269

Common Stock and Surplus $48,770 $53,307 $57,486 $53,348 $57,486 $57,600

AOCI ($523) ($574) ($1,124) ($1,381) ($1,124) ($583)

Total Equity $52,007 $55,294 $59,114 $54,836 $59,114 $60,285

Total Liabilities and Equity $496,887 $533,122 $478,815 $511,192 $478,815 $477,902

Tangible Book Value per Share $8.41 $8.46 $8.47 $8.35 $8.47 $8.62

Core Deposit Mix


Footnote:Core Deposits as defined by FDIC represent 80.28% on 12/31/17, 75.43% on 12/31/18, and 75.25% on 3/31/19 of total deposits.

Deposit Mix ($ in thousands)

Non Interest Bearing Deposits $72,779

Interest Checking/Savings $10,513

Money Market $113,488

Time Deposits (excl. Wholesale) $165,596

Wholesale Time Deposits $32,841

Total Deposits $395,217















17%

3%

30%

42%

8%

12/31/2018

15% 2%

38%

38%

7%

12/31/17

18%

3%

29%

42%

8%

3/31/2019

Footnote:Commercial Real Estate/Total Capital was 229% on 12/31/17, 182% on 12/31/18, and 166% on 3/31/19.

Organic Loan Mix


Loan Mix ($ in thousands)

Commercial Real Estate (CRE) $108,589

Owner Occupied CRE $100,336

C&I $71,744

Residential Real Estate (incl Construction) $77,078

Consumer $25,451

Other Loans less Unearned Interest Income $4,823

Total Loans $388,021




C&I $76,680


Consumer $25,432

Other Loans less Unearned Interest Income $97





C&I $64,153


Consumer $20,431

Other Loans less Unearned Interest Income -$126


34%

24%

15%

22%

5%

12/31/2017

30%

27%

19%

18%

6%

12/31/2018

28%

26%18%

20%

7%

3/31/2019

24

Expectations for 2019


• Our aspiration is to grow tangible book value per share by 10% each year in order to earn our right to be independent

• The Board has established the following near-term financial goals and long-term aspirations:

2018 Actual 2019 Forecast 5-Year Aspiration

– Net Interest Margin 3.38% 3.4-3.6% 3.5-4.0%

– Efficiency Ratio 92% 75-85% 60-70%

– Return on Assets 0.0% 0.65-0.75% 1.0-1.25%

• There are three key ingredients to success the Freedom Bank team is focused on in 2019 – “The 3L Plan”

– Loan Origination - $100 million in new loans to achieve approximately 6% net loan growth in 2019 and $110 million in mortgage loan origination

– Lead Relationships to get $15 million in net new Demand Deposits in order to pay off maturing brokered CDs and FHLB borrowings

– Lower Expenses - $1.5 million reduction in total operating expenses across the platform

• All employees participate in incentive plans that calibrates compensation based upon pre-tax profit and efficiency ratio.

Investment Summary


► Washington DC MSA and Northern Virginia market is one of the largest, affluent, diverse, and resilient economies in the United States.

► New Board Chairman and President & CEO have repositioned the strategy of the Company to remake franchise, grow organically, and improve financial performance.

► Bank mergers and de novos have resulted in unwanted change for clients and employees that creates opportunities for Freedom Bank to deepen market penetration and extend its footprint.

► Our strategy to focus on entrepreneurs with dedicated industry groups is getting significant traction and is driving high levels of C&I lending and non-interest Demand Deposits.

► Freedom Bank has a leading digital platform, strong credit quality, streamlined sales office structure, and abundant capital for growth.

► The Bank has completed its restructuring and will now generate sustained growth in earnings and tangible book value per share.

► The Bank trades on OTCQX with reasonable liquidity and is currently undervalued relative to peer banks in Washington DC MSA.


Investment Attributes

27

FDVA Stock Price Change (%) – 2 YearAs of 3/31/19

Attractive Valuation


FDVA Stock Price/Tangible Book – 2 YearAs of 3/31/19

Source: S&P Global

Joseph J. Thomas, CFAPresident and CEO

[email protected]@Joseph_J_Thomas703-667-416110555 Main StreetSuite 600Fairfax, Virginia 22038

Contact Information


mailto:[email protected]

presentation to investors may 13, 2019 · shaun e. murphy - chief operating and credit officer -...

Documents