Blue Ridge Bankshares, Inc. 2023 Form 10-K Summary
Business Context and Reporting Period
Blue Ridge Bankshares, Inc. is a Virginia-based bank holding company operating through Blue Ridge Bank, National Association and BRB Financial Group. The Bank provides commercial and consumer banking, mortgage banking, government-guaranteed lending, wealth and trust management, employee benefit services, and fintech-related banking and lending services. As of December 31, 2023, it operated 27 full-service offices, had approximately 507 full-time and 27 part-time employees, and served markets in Virginia and North Carolina.
This filing reports the fiscal year ended December 31, 2023. The consolidated financial statements were audited by Elliott Davis, PLLC, which issued an unqualified opinion. The filing incorporates the effects of the 2022 restatement related primarily to specialty finance loan risk grading, nonaccrual classification, and the allowance for credit losses.
Financial Performance and Position
| Metric | 2023 | 2022 | Change or comment |
|---|---|---|---|
| Total assets | $3.118 billion | $3.130 billion | Down modestly |
| Gross loans held for investment | $2.430 billion | $2.413 billion | Up 0.7% |
| Total deposits | $2.566 billion | $2.503 billion | Up 2.5% |
| Stockholders’ equity | $186.0 million | $248.8 million | Down primarily because of the net loss |
| Net interest income | $93.0 million | $104.6 million | Down 11.0% |
| Net interest margin | 3.07% | 4.00% | Down 93 basis points |
| Provision for credit losses | $22.3 million | $25.7 million | Down 13.1% |
| Noninterest income | $28.5 million | $48.1 million | Down 40.7% |
| Noninterest expense | $158.1 million | $104.8 million | Up 50.9% |
| Net loss from continuing operations | $51.8 million | $17.0 million net income | 2023 diluted loss per share was $2.73 |
| Cash provided by operating activities | $44.1 million | $93.9 million | Down substantially |
| Cash and restricted cash | $121.2 million | $77.3 million | Increased year over year |
Interest income increased to $169.0 million from $121.7 million, primarily from loan growth and higher loan yields. Interest expense increased sharply to $76.0 million from $17.1 million as deposit and borrowing costs rose. Average interest-bearing liability cost increased to 3.29% from 1.00%, while cost of funds rose to 2.56% from 0.68%.
The net loss included a $26.8 million goodwill impairment charge and a $6.0 million reserve for the VCB Employee Stock Ownership Plan litigation settlement. The filing identifies the goodwill impairment as a noncash charge and indicates that the ESOP reserve had an after-tax impact of approximately $4.8 million.
Residential mortgage banking income fell to $10.0 million from $20.6 million as mortgage loan sales declined to $315.5 million from $594.9 million. Gain on sale of guaranteed government loans increased to $5.7 million from $4.7 million.
Credit Quality, Capital, Debt and Liquidity
- The allowance for credit losses was $35.9 million, or 1.48% of loans held for investment, compared with $30.7 million, or 1.27%, at year-end 2022.
- Net charge-offs increased to $27.0 million from $7.1 million. Specialty finance loans accounted for approximately $19.5 million of 2023 net charge-offs.
- Nonperforming loans declined to $63.1 million, or 2.02% of total assets, from $84.3 million, or 2.69%. Specialty finance loans represented $34.2 million of nonperforming loans and had $9.6 million of specific reserves.
- Approximately 76.6% of loans were secured by real estate. Commercial real estate loans totaled approximately $870.5 million, and construction and land development loans totaled approximately $255.9 million.
- At December 31, 2023, the Bank reported a common equity Tier 1 ratio of 9.09%, total risk-based capital ratio of 10.25%, and Tier 1 leverage ratio of 7.49%. These levels exceeded ordinary “well capitalized” thresholds but fell below the capital conservation buffer and the heightened requirements imposed by the OCC.
- The OCC’s individual minimum capital ratios require a 10.00% leverage ratio and 13.00% total capital ratio. The Bank did not meet either requirement at year-end.
- Year-end borrowings included $210.0 million of FHLB advances, $65.0 million of Federal Reserve borrowings, and $39.9 million of subordinated notes.
- The FHLB line had $135.5 million of available capacity at year-end, and the Company had $161.0 million of secured Discount Window capacity. The $65.0 million BTFP advance matured May 10, 2024; the Bank no longer had access to additional BTFP advances after year-end.
- Fintech-related deposits declined to approximately $465.9 million, or 18.2% of deposits, from $690.2 million, or 27.6%. Brokered deposits increased to $515.5 million, or 20.1% of deposits, from approximately $49.5 million.
Material Changes Versus the Prior Comparable Period
- Net interest income and net interest margin declined because deposit and wholesale funding costs increased faster than asset yields.
- Noninterest income declined primarily because of lower mortgage banking revenue, lower equity-investment fair value gains, and a $1.6 million loss on the sale of an equity investment.
- Noninterest expense rose due to regulatory remediation, compliance personnel and consultants, legal and accounting costs, higher FDIC insurance premiums, the goodwill impairment, and the ESOP litigation reserve.
- The Company adopted CECL on January 1, 2023. The adoption increased the ACL by $7.4 million and reduced stockholders’ equity by $8.1 million after tax, including the reserve for unfunded commitments.
- Goodwill was reduced to zero after a $26.8 million impairment charge in the third quarter of 2023.
- The Company sold its wholesale mortgage business, LenderSelect Mortgage Group, on May 15, 2023 for $250 thousand in cash and recorded a $553 thousand loss.
- The Board suspended common stock dividends after the October 2023 payment. The Company paid $0.245 per share during 2023 but expects dividends to remain suspended for the foreseeable future.
- The 2022 material weakness related to specialty finance loan risk grading, nonaccrual classification, and ACL estimation was reported as remediated as of December 31, 2023. The Company also restated 2022 and interim 2023 filings before this Form 10-K.
Guidance, Outlook, Management Commentary, Risks and Unusual Items
On January 24, 2024, the Bank consented to a new OCC Consent Order replacing the August 2022 Written Agreement. The order requires enhanced BSA/AML controls, third-party and fintech oversight, information technology risk management, strategic and capital plans, OCC non-objection for certain fintech activities, and compliance with the 10.00% leverage and 13.00% total capital ratios. The Bank is deemed less than well capitalized, or adequately capitalized, until the heightened ratios are achieved and the order is lifted.
Management expects to substantially exit its BaaS fintech activities during 2024. The wind-down may reduce deposits, interest income, fee income, and liquidity, while initially increasing compliance, consulting, and restructuring costs. Management also expects funding costs to remain elevated because of core time-deposit repricing and the need to replace fintech-related deposits with more expensive core or wholesale funding.
On December 21, 2023, the Company agreed to a private placement of 60 million common shares at $2.50 per share and warrants for approximately 29.4 million shares at a $2.50 exercise price, for gross proceeds of $150 million. Shareholders approved the transaction on March 6, 2024, but closing remained subject to other conditions, including regulatory approvals, listing approval, minimum purchaser funding, and capital requirements. The proceeds are intended for general corporate purposes, business repositioning, organic growth, liquidity, and Bank capital.
The financial statements state that management evaluated substantial doubt about the Company’s ability to continue as a going concern. Management’s plans include completing the private placement, contributing capital to the Bank, complying with the Consent Order, winding down BaaS, managing liquidity, improving asset quality, and reducing expenses. The financial statements continue to be prepared on a going-concern basis.
Other material risks include additional regulatory action or penalties, failure to complete the private placement, deposit outflows, restrictions on brokered deposits, commercial real estate and construction loan losses, further specialty finance deterioration, interest-rate sensitivity, unrealized securities losses, cybersecurity and third-party vendor risks, litigation, reputational damage, and the potential inability to maintain adequate liquidity or capital.
The Company reported $58.6 million of gross unrealized losses on available-for-sale securities at year-end, substantially attributable to higher interest rates. Accumulated other comprehensive loss was $45.1 million, net of tax. Management does not expect these securities to be sold before recovery, but realized losses could occur if liquidity needs require sales.
Most Important Facts for Investors to Verify
- Whether the $150 million private placement closed on the expected terms and how much capital was contributed to the Bank.
- Whether the Bank achieved and maintained the OCC-required 10.00% leverage ratio and 13.00% total capital ratio.
- Progress, deadlines, and any additional enforcement actions associated with the OCC Consent Order, BSA/AML remediation, and fintech wind-down.
- The pace and economic impact of exiting BaaS, including changes in fintech deposits, brokered deposits, liquidity, fee income, and operating expenses.
- Trends in specialty finance loans, modified loans, nonperforming assets, charge-offs, and the adequacy of the ACL.
- Exposure to commercial real estate, office, construction, and other geographically concentrated loans.
- Future net interest margin and funding costs as deposits reprice and wholesale funding changes.
- Whether the VCB ESOP settlement receives final court approval and whether the shareholder securities litigation produces additional costs or liabilities.
- Whether the 2023 remediation of the prior material weakness remains effective and whether future restatements or control deficiencies arise.
- The status of suspended dividends and the potential dilution from the new shares and warrants.