Blue Ridge Bankshares, Inc. — Form 10-Q Summary
Business context and reporting period
Blue Ridge Bankshares, Inc. is a bank holding company operating primarily through Blue Ridge Bank, N.A. and a wealth and trust management subsidiary. The filing covers the three and six months ended June 30, 2023, compared primarily with the corresponding 2022 periods, and presents unaudited consolidated GAAP financial statements.
The Bank remains subject to an August 2022 formal written agreement with the OCC concerning fintech partnerships, third-party risk, BSA/AML compliance, and information technology controls. Management stated that remediation is progressing but will require considerable time for completion, validation, and sustainability.
Key financial metrics
| Metric | Three months ended June 30, 2023 | Six months ended June 30, 2023 |
|---|---|---|
| Interest income | $39.0 million | $82.0 million |
| Net interest income | $20.4 million | $47.8 million |
| Net interest margin | 2.67% | 3.12% |
| Noninterest income | $9.7 million | $17.0 million |
| Noninterest expense | $34.1 million | $62.9 million |
| Provision for credit losses | $20.5 million | $24.2 million |
| Net income attributable to common stockholders | $(19.5) million | $(17.9) million |
| Basic and diluted EPS | $(1.03) | $(0.95) |
Net interest margin declined from 3.89% in the second quarter of 2022 to 2.67% in the second quarter of 2023 and from 3.88% to 3.12% for the first six months. The decline primarily reflected substantially higher funding costs and the reversal of approximately $4.7 million of interest income on specialty finance loans placed on nonaccrual status.
| Balance-sheet metric | June 30, 2023 | December 31, 2022 |
|---|---|---|
| Total assets | $3.21 billion | $3.14 billion |
| Loans held for investment, net | $2.41 billion | $2.38 billion |
| Allowance for credit losses | $43.1 million | $22.9 million |
| Total deposits | $2.61 billion | $2.50 billion |
| FHLB borrowings | $219.1 million | $311.7 million |
| FRB borrowings | $65.0 million | $0.1 million |
| Subordinated notes, net | $39.9 million | $39.9 million |
| Stockholders’ equity | $231.3 million | $259.4 million |
Cash and due from banks increased to $131.8 million from $77.3 million. Deposits increased by $110.6 million, largely because time deposits rose by approximately $220.1 million, including $211.0 million of brokered time deposits. Fintech-related deposits were $707.6 million, or 27.1% of total deposits. Estimated uninsured deposits were $865.7 million, or 33% of total deposits.
For the six months ended June 30, 2023, operating activities provided $27.2 million of cash, investing activities used $51.5 million, and financing activities provided $78.9 million. Net cash and due from banks increased $54.6 million to $131.8 million.
Material changes versus prior comparable periods
- The Company reported a second-quarter net loss of $19.5 million versus net income of $1.1 million in the second quarter of 2022; the six-month result was a $17.9 million loss versus $18.5 million of continuing-operations income.
- Interest expense increased to $18.6 million in the second quarter from $2.2 million, and to $34.3 million for the first six months from $4.3 million, driven by higher market rates and greater use of brokered deposits and borrowings.
- Noninterest income declined 4.5% in the quarter and 50.4% for the first six months. Six-month residential mortgage banking income fell to $5.6 million from $15.5 million, primarily because mortgage production volume declined to $107.0 million from $269.2 million.
- Noninterest expense increased 34.5% in the quarter and 31.0% year to date. Increases included regulatory remediation, legal and issuer costs, outsourced BSA/AML services, FDIC insurance, and other contractual services.
- Nonperforming loans increased to $85.8 million, or 3.49% of loans held for investment, from $18.6 million, or 0.77%. The increase primarily reflected $58.1 million of specialty finance loans placed on nonaccrual status.
- The ACL increased by $20.1 million. The increase included $14.1 million of specific reserves for specialty finance loans, $4.0 million from adoption of CECL, and net charge-offs of $9.1 million for the first six months.
- Stockholders’ equity decreased $28.1 million, primarily because of the net loss, the after-tax CECL adoption adjustment of $5.5 million, dividends, and accumulated other comprehensive losses.
- The Company adopted CECL on January 1, 2023, reducing retained earnings by $5.5 million and increasing the ACL by $4.0 million and the reserve for unfunded commitments by $3.7 million.
Liquidity, debt, capital, outlook, and risks
As of June 30, 2023, the Bank had $286.0 million of remaining FHLB borrowing capacity, $35.5 million of remaining BTFP capacity, $11.1 million of FRB Discount Window availability, and $28.0 million of undrawn correspondent-bank lines. The Bank had drawn $65.0 million under the BTFP at a fixed rate of 4.74%, maturing May 10, 2024. Management stated that liquidity was adequate, while noting that deposit outflows, market disruptions, reputational issues, and loss of access to wholesale funding could impair liquidity.
The Bank remained classified as well capitalized. At June 30, 2023, total risk-based capital was 10.77%, Tier 1 capital was 9.27%, common equity Tier 1 capital was 9.27%, and the Tier 1 leverage ratio was 7.86%. These ratios exceeded the stated well-capitalized thresholds.
No formal earnings or financial guidance was provided. Management’s outlook is subject to elevated credit, funding, interest-rate, regulatory, and fintech-partnership risks. The filing identifies potential additional regulatory requirements, growth restrictions, asset sales, loan reserves, impairments, sanctions, or other enforcement actions if the OCC Written Agreement is not fully satisfied.
The Company sold LenderSelect Mortgage Group on May 15, 2023 for $250 thousand in cash and recorded a $553 thousand loss. MoneyWise Payroll Solutions remains reported as discontinued operations for prior periods following its 2022 sale. The Company also disclosed a pending VCB ESOP class action with alleged damages approaching or exceeding $12 million; no loss has been accrued because management believes the claims are without merit.
Important facts for investors to verify
- Whether specialty finance loan deterioration is isolated or leads to additional nonaccrual loans, charge-offs, reserves, or lost interest income.
- The adequacy of the $43.1 million ACL relative to $85.8 million of nonperforming loans and $121.3 million of collateral-dependent loans.
- Progress and sustainability of remediation required by the OCC Written Agreement, including BSA/AML, third-party, information technology, and fintech controls.
- The stability, pricing, and renewal risk of brokered and fintech-related deposits, including $865.7 million of estimated uninsured deposits.
- The effect of elevated deposit and wholesale funding costs on net interest margin, liquidity, earnings, and capital.
- Whether mortgage banking revenue remains materially below 2022 levels and whether the LenderSelect sale changes the Company’s mortgage strategy.
- Potential exposure from the VCB ESOP litigation, regulatory matters, off-balance-sheet commitments of $679.1 million, and investment commitments of $17.9 million.