presentation to investors august 5, 2019 · 2019-08-05 · 2 sonabank 49 1,989,387 0.36% 3 fvcbank...

Presentation to InvestorsAugust 5, 2019

Joseph J. Thomas – President and CEO

· f r e e d o m b a n k v a . c o m ·

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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

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Agenda


Investment Summary

Company Overview

Financial Results

4

Company Overview


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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”


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Promoting Our Core Values


The above advertisement ran as a half-page ad in the Washington Business as part of a 7 week series.

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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.

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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.

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.

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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

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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.

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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 General Counsel & Chief Compliance Officer of StreetShares, Inc., a Reston, Virginia based fintech that provides small business banking services and software to banks and credit unions. Prior to joining StreetShares in 2019, Ms. McKelvey practiced law as a shareholder at the prominent Northern Virginia law firm, Odin Feldman & Pittleman, PC, where she represented banks, financial fiduciaries, technology companies, and other clients on legal and compliance issues in the areas of technology, cybersecurity, intellectual property, creditor’s rights, bankruptcy, financial restructuring, and privacy. Ms. McKelvey holds a B.A. from Sweet Briar College, a M.A. from Georgetown University, and a J.D. from the George Mason University Antonin Scalia Law School.

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.

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

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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 (75.85% of total deposits as of June 30, 2019)

• Strong business banking franchise (3.42% NIM for six month ended June 30, 2019)

Mortgage Banking

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

• Loan production for YTD 2019 totaled $71.2 million

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

Financial Services

• Merchant Services

• Payroll & Benefits

• Business Credit Card

Comprehensive & Diverse Business Units


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Financial Results


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Highlights of the 2019 Second Quarter:

• Pre-tax Pre-provision Net Income increased by 48.2% compared to prior quarter reflecting early success of the company’s restructuring efforts.

• Non-interest Income increased by 50.2% compared to the prior quarter due to strong origination of residential mortgage loans.

• Non-interest expense was reduced by 2.7% compared to the prior quarter on continued rigorous expense control.

• Loans increased at a 15.6% annualized rate to $403.2 million compared to the prior quarter reflecting a refocus on growth and success serving entrepreneurs and real estate investors.

• Non-interest bearing DDAs increased at a 49.3% annualized rate to $82.8 million, driven by the rollout of new Treasury Services products to lead relationships.

• Asset quality remains strong with the ratios of NPAs to total assets at 0.65% and the ALLL at 1.14% of loans receivable.

• Capital levels continue to be high with a Tier 1 leverage ratio of 12.7% and risk is modest with the CRE/Tier 1 capital ratio at 204%.


Financial Results for Q2 2019

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Areas of Ongoing Focus in the Second Half of 2019:

• Net Interest Income declined by 8.2% to $3.77 million compared to the prior quarter and the Bank needs an additional $25 million in net loan growth to hit target of 6% loan growth in 2019.

• Yield on average earning assets declined by 25 b.p. to 5.17% in the quarter due, in part, to reversal of interest income on loans placed on non-accrual in the second quarter.

• Cost of funds increased by 12 b.p. to 1.66% in the quarter and the Bank needs an additional $45 million in lower cost core deposits to replace higher cost wholesale funds maturing in 2019.

• Net Interest Margin of 3.27% was lower by 33 b.p. in the quarter compared to the prior period and the Bank will need more C&I loans and core deposits to hit our target of 3.4-3.6% in 2019.

• The Efficiency Ratio improved to 84.9% in the quarter, but more top line revenue growth and on-going expense discipline is required to achieve our 2019 Efficiency Ratio target range of 75-85%.

• Return on Average Assets of 0.42% in the quarter was flat compared to the prior quarter and remains sub-par and well below our ROAA target range of 0.65%-0.75% for 2019.

• Tangible Book Value per share of $8.60 increased by 1.5% over year-end 2018, depressed by more shares from exercise of legacy stock options, and below our 10% TBV growth target.


Financial Results for Q2 2019 (Continued)


Financial Highlights

Highlights ($ in thousands)FY FY Qtr Qtr Qtr

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

Balance Sheet

Total Assets $533,122 $478,815 $512,820 $477,902 $480,906

Gross Loans HFI $407,333 $394,080 $400,424 $377,459 $389,070

Total Deposits $465,981 $400,732 $434,304 $395,227 $398,408

Capital Ratios (%)

Tier 1 RBC Ratio 13.32% 14.73% 14.03% 15.28% 14.91%

CET1 Ratio 13.32% 14.73% 14.03% 15.28% 14.91%

Leverage Ratio 10.19% 12.15% 11.37% 12.61% 12.71%

Asset Quality (%)

NPAs/Assets 0.14% 0.71% 0.29% 0.62% 0.65%

NCOs/Average Loans 0.00% 0.09% 0.04% 0.02% 0.06%

ALLL/Loans HFI 1.12% 1.15% 1.09% 1.19% 1.14%

Profitability

ROAA 0.55% 0.04% 0.55% 0.43% 0.42%

ROAE 5.32% 0.34% 5.07% 3.51% 3.36%

Net Interest Margin 3.50% 3.38% 3.59% 3.60% 3.27%

Non Interest Income/Total Revenue 20.38% 11.71% 20.52% 18.49% 27.87%

Efficiency Ratio 77.53% 97.21% 85.65% 89.59% 84.97%

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Income Statement - GAAP


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

FY FY Qtr Qtr Qtr

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

Net Interest Income (before provision) $18,127 $17,567 $4,510 $4,109 $3,771

Provision for Loan Losses ($30) ($406) $0 $0 ($148)

Non-Interest Income $4,640 $2,329 $1,164 $963 $1,400

Non-Interest Expense $17,652 $19,341 $4,860 $4,516 $4,394

Pre-tax Net Income $5,085 $149 $814 $525 $630

After-tax Net Income $2,695 $191 $700 $516 $509

Basic EPS $0.41 $0.03 $0.11 $0.07 $0.07

ROAA 0.52% 0.04% 0.55% 0.43% 0.42%

ROAE 5.02% 0.34% 5.07% 3.51% 3.36%

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Core Net Income – Non GAAP


Income Statement History ($ thousands)

FYDec-17

FYDec-18

QtrJun-18

QtrMar-19

QtrJun-19

GAAP Pre-tax Net Income $5,085 $149 $814 $525 $630

Add Back - Provision for Loan Losses $30 $406 $0 $0 $148

GAAP Pre-tax, Pre-provision Net Income $5,115 $555 $814 $525 $778

Add Back Extraordinary Items

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

Severance $0 $462 $0 $175 $0

Legal Fees $0 $583 $0 $0 $0

Accounting Restatement $0 $214 $0 $0 $0

Vendor Contract Payments $0 $244 $0 $0 $0

Total Extraordinary Items $0 $2,959 $0 $175 $0

Core Pre-tax, Pre-provision Net Income $5,115 $3,514 $814 $700 $778

Core Pre-tax Net Income $5,085 $3,108 $814 $700 $630

Core After-Tax Net Income $4,017 $2,455 $643 $553 $498

Metrics

Basic EPS $0.53 $0.36 $0.10 $0.08 $0.07

ROAA 0.67% 0.48% 0.50% 0.46% 0.41%

ROAE 6.48% 4.32% 4.66% 3.76% 3.29%

Balance Sheet


Balance Sheet History ($ in thousands)

FY FY Qtr Qtr Qtr

17-Dec 18-Dec 18-Jun 18-Dec 19-Jun

Assets

Cash and Fed Balances $35,228 $15,647 $18,842 $15,602 $19,137

Investments $76,859 $51,280 $77,813 $57,218 $50,276

Total Loans $415,105 $398,496 $410,955 $388,021 $403,164

Allowance for Loan Losses ($4,562) ($4,572) ($4,362) ($4,509) ($4,436)

Other Assets $10,492 $17,964 $9,570 $21,571 $21,765

Total Assets $533,122 $478,815 $512,820 $477,902 $489,906

Liabilities

Non Interest Bearing Deposits $69,942 $67,013 $73,154 $72,779 $81,750

Interest Checking Deposits $5,450 $8,252 $5,828 $8,031 $9,075

Savings and Money Market $181,095 $123,175 $166,464 $115,970 $105,668

Retail Time Deposits $177,902 $169,985 $159,423 $165,596 $175,718

Wholesale Time Deposits $31,591 $32,307 $29,261 $32,841 $26,197

Total Deposits $456,981 $400,732 $434,304 $395,227 $398,408

FHLB Borrowings $10,428 $17,143 $19,286 $17,000 $24,850

Other Liabilities $1,419 $1,826 $2,487 $5,390 $5,399

Total Liabilities $477,828 $419,701 $456,076 $417,617 $428,656

Equity

Retained Earnings $2,561 $2,752 $3,570 $3,269 $3,778

Common Stock and Surplus $53,307 $57,486 $54,707 $57,600 $57,725

AOCI ($574) ($1,124) ($1,534) ($583) ($253)

Total Equity $55,294 $59,114 $56,734 $60,285 $61,250

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

Tangible Book Value per Share $8.46 $8.47 $8.44 $8.62 $8.60

Core Deposit Mix


Footnote:Core Deposits as defined by FDIC represent 80.28% on 12/31/17, 75.43% on 12/31/18, and 75.85% on 6/30/19 of total deposits.

Deposit Mix ($ in thousands)

Non Interest Bearing Deposits $81,750

Interest Checking/Savings $11,619

Money Market $103,123

Time Deposits (excl. Wholesale) $175,718

Wholesale Time Deposits $26,197

Total Deposits $398,408















17%

3%

30%

42%

8%

12/31/2018

15% 2%

38%

38%

7%

12/31/17

21%

3%

26%

44%

7%

6/30/2019

Footnote:Commercial Real Estate/Tier 1 Capital was 248% on 12/31/17, 195% on 12/31/18, and 204% on 6/30/19.

Organic Loan Mix


Loan Mix ($ in thousands)

Commercial Real Estate (CRE) $125,468

Owner Occupied CRE $99,512

C&I $72,060

Residential Real Estate (incl Construction) $76,942

Consumer $24,320

Other Loans less Unearned Interest Income $4,800

Total Loans $403,102




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

31%

25%

18%

19%

6%

6/30/2019

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

25

FDVA Stock Price Change (%) – 2 YearAs of 7/31/19

Attractive Valuation


FDVA Stock Price/Tangible Book – 2 YearAs of 7/31/19

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 august 5, 2019 · 2019-08-05 · 2 sonabank 49 1,989,387 0.36% 3 fvcbank...

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