Blue Ridge Bankshares, Inc. 2020 Q2 SEC Filing Summary
Business context and reporting period
Blue Ridge Bankshares, Inc. is a Virginia-based bank holding company whose subsidiaries provide commercial banking, mortgage banking and payroll-processing services in Virginia and surrounding states. The unaudited Form 10-Q covers the three and six months ended June 30, 2020, with comparisons to June 30, 2019 and December 31, 2019. Results were materially affected by the December 2019 acquisition of Virginia Community Bankshares, Inc., the COVID-19 pandemic and Paycheck Protection Program activity.
Key financial metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net interest income | $10.6 million | $5.2 million | $18.7 million | $10.1 million |
| Provision for loan losses | $3.5 million | $0.6 million | $4.1 million | $0.9 million |
| Non-interest income | $16.5 million | $5.4 million | $21.5 million | $9.3 million |
| Non-interest expense | $15.8 million | $8.2 million | $27.1 million | $15.0 million |
| Net income attributable to Blue Ridge | $6.2 million | $1.5 million | $7.1 million | $2.8 million |
| Diluted EPS | $1.10 | $0.35 | $1.25 | $0.73 |
| Net interest margin | 3.19% | 3.35% | 3.40% | 3.49% |
Q2 net income increased approximately 306% year over year, while six-month net income increased approximately 151%. The filing does not present a single consolidated revenue line labeled “revenue”; reported total interest income plus non-interest income was approximately $29.7 million in Q2 2020 and $45.1 million for the first six months.
Balance sheet, liquidity and capital
- Total assets were $1.586 billion at June 30, 2020, up 65.1% from $960.8 million at December 31, 2019.
- Loans held for investment were $1.021 billion, up 57.9%, including approximately $350 million of PPP loans. Loans held for sale were $127.8 million, up 129.7%, reflecting strong mortgage origination activity.
- Total deposits were $965.9 million, up 33.8%. Brokered and listing-service deposits were $97.5 million, up from $49.8 million.
- Other borrowings were $478.4 million, including $354.4 million of Federal Reserve PPP Liquidity Facility advances at a 0.35% rate and $124.0 million of FHLB borrowings.
- Cash and due from banks totaled $241.1 million, compared with $60.0 million at year-end. Available FHLB credit was $168.6 million at June 30, 2020, and unused federal funds lines totaled $38.0 million.
- Shareholders’ equity was $95.2 million. The Bank remained well capitalized, with a total risk-based capital ratio of 12.33%, Tier 1 risk-based capital ratio of 11.26%, leverage ratio of 7.39% and CET1 ratio of 11.26%.
Cash flow and credit quality
- Six-month operating cash flow was negative $84.5 million, and investing cash flow was negative $345.7 million, primarily reflecting loan growth and mortgage activity.
- Financing cash flow was positive $611.3 million, driven by deposit growth, PPP Liquidity Facility advances and subordinated debt issuance. Cash increased $181.1 million to $241.1 million.
- The allowance for loan losses increased to $8.2 million, or 0.80% of loans held for investment, from $4.6 million, or 0.71%, at year-end.
- Non-performing loans were $6.2 million, or 0.60% of loans, compared with $5.2 million, or 0.80%, at December 31, 2019. Nonaccrual loans declined to $3.9 million, but loans more than 90 days past due and accruing increased to $2.3 million.
- Management executed 545 COVID-19-related loan deferrals totaling $104.8 million as of August 7, 2020. The filing states that the ultimate financial impact cannot yet be quantified.
Material changes versus prior periods
- Growth was driven by the VCB acquisition, PPP lending, retained PPP-related deposits, higher mortgage volume and expanded mortgage staffing.
- Mortgage-related income increased sharply, including $9.5 million of gains on mortgage sales, $4.2 million of mortgage brokerage income and $1.6 million of mortgage servicing income in Q2. The company began retaining mortgage servicing rights and was servicing approximately $213.5 million of sold mortgage loans at June 30.
- Net interest margin declined year over year as asset yields fell amid lower interest rates, partially offset by lower funding costs. Q2 average earning assets more than doubled to $1.33 billion from $621.1 million.
- Personnel expense rose 126.4% in Q2, primarily due to employees retained in the VCB and mortgage acquisitions and additional mortgage hiring. Total non-interest expense rose 93.7%.
- The company transferred $10.98 million of securities from held-to-maturity to available-for-sale. Accumulated other comprehensive income declined to a $3.3 million loss, largely reflecting unrealized interest-rate swap losses.
- On May 28, 2020, the company issued $15 million of 6.00% subordinated debt due in 2030, increasing net subordinated debt to $24.5 million.
Outlook, commentary, risks and unusual items
- No formal earnings or revenue guidance was provided. Management expected to earn approximately $11 million of SBA processing fees from PPP lending.
- Management described the COVID-19 environment as highly uncertain, shifted emphasis from loan origination to portfolio maintenance and borrower protection, reduced expenses where feasible and accelerated digital and drive-through banking channels.
- Key risks include additional COVID-19-related credit losses, declining collateral values, delayed recognition of deterioration because of loan deferrals, lower net interest margins, PPP-related litigation or liability, liquidity stress, cyber and payment fraud, and dependence on wholesale funding.
- On August 13, 2020, the company announced an all-stock merger agreement with Bay Banks of Virginia, Inc. Bay Banks shareholders are expected to own approximately 54% of the combined company and Blue Ridge shareholders approximately 46%. Completion depends on shareholder and regulatory approvals and carries substantial integration, execution and COVID-19 risks.
- The company assumed potential liability in a former VCB employee ESOP class action alleging damages approaching or exceeding $12 million. Management believes the claims are without merit.
- The company declared a quarterly dividend of $0.1425 per share payable July 31, 2020.
Most important facts for investors to verify
- Whether PPP loan forgiveness and the expected approximately $11 million of SBA fees are realized, and how quickly the related Federal Reserve borrowings pay down.
- Performance of the $104.8 million of COVID-19-deferred loans after deferral periods expire, including future provisions, charge-offs and allowance adequacy.
- Sustainability of mortgage origination, gain-on-sale income and mortgage servicing income after the unusually strong Q2 volume.
- Deposit stability, brokered-funding dependence, FHLB availability and liquidity under adverse scenarios.
- Progress, regulatory approvals, costs and shareholder consequences of the proposed Bay Banks merger.
- Potential exposure from the VCB ESOP litigation and from PPP-related operational, legal and reputational risks.
- Future net interest margin trends as rates remain low and the balance sheet contains substantial fixed-rate loans and wholesale funding.