Blue Ridge Bankshares, Inc. — Form 10-Q Summary
Business context and reporting period
Blue Ridge Bankshares, Inc. is a Virginia bank holding company operating primarily through Blue Ridge Bank, N.A. and its wealth and trust management subsidiary. The filing covers the unaudited three months ended March 31, 2022, compared with the three months ended March 31, 2021, and the balance sheet is compared with December 31, 2021.
The company reports commercial banking, mortgage banking, and parent activities. It sold its majority interest in MoneyWise Payroll Solutions, Inc. during the first quarter of 2022; MoneyWise is presented as discontinued operations for all periods.
Financial performance and key metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total interest income | $25.8 million | $22.6 million | +$3.2 million |
| Net interest income | $23.7 million | $20.0 million | +$3.7 million |
| Net interest margin | 3.87% | 3.43% | +44 basis points |
| Provision for loan losses | $2.5 million | $0 | +$2.5 million |
| Noninterest income | $24.1 million | $15.5 million | +55.1% |
| Noninterest expense | $22.7 million | $30.2 million | -25.0% |
| Income from continuing operations | $17.4 million | $4.2 million | +$13.2 million |
| Net income attributable to Blue Ridge Bankshares | $17.8 million | $4.2 million | +$13.5 million |
| Diluted EPS | $0.95 | $0.28 | +$0.67 |
| Comprehensive income attributable to the company | $(88,000) | $8.0 million | Declined primarily due to securities losses |
Q1 2022 earnings included a $9.4 million fair-value gain on other equity investments, primarily fintech investments, and $6.7 million of mortgage servicing rights income. Residential mortgage banking income declined to $2.8 million from $9.3 million as mortgage volume fell to $151.4 million from $361.4 million.
Average interest-earning assets increased to $2.44 billion from $2.33 billion, while the cost of funds declined to 0.36% from 0.45%. The effective tax rate on continuing operations increased to 22.8% from 20.3%.
Financial condition, liquidity, debt, and capital
| Balance-sheet metric | March 31, 2022 | December 31, 2021 |
|---|---|---|
| Total assets | $2.72 billion | $2.67 billion |
| Loans held for investment, net of allowance | $1.85 billion | $1.80 billion |
| Loans held for investment, excluding PPP loans | $1.84 billion | $1.78 billion |
| Loans held for sale | $41.0 million | $121.9 million |
| Total deposits | $2.35 billion | $2.30 billion |
| Stockholders’ equity | $278.5 million | $277.1 million |
| Cash and due from banks | $162.2 million | $130.5 million |
- Loan growth excluding PPP loans was $66.2 million, or an annualized 14.9%, led by commercial and commercial real estate lending.
- Deposits increased $56.3 million, primarily from noninterest-bearing demand deposits associated with fintech partnerships. Fintech-related deposits increased to approximately $329 million from $189 million.
- The allowance for loan losses was $12.0 million, or 0.65% of loans excluding PPP loans, compared with 0.68% at year-end. Q1 net charge-offs were $2.6 million.
- Nonperforming loans declined to $14.2 million from $16.1 million, and nonperforming assets declined to $14.3 million from $16.3 million.
- Borrowings included $10.1 million of FHLB advances, $15.2 million of FRB PPP Liquidity Facility borrowings, and $40.0 million of subordinated notes. The company had $44.0 million of undrawn unsecured correspondent lines.
- FHLB borrowing capacity was $315.1 million; after $10.0 million of advances and $85.0 million of letters of credit, remaining availability was $220.1 million.
- The Bank was categorized as well capitalized. March 31, 2022 ratios included total risk-based capital of 13.29%, Tier 1 capital of 12.69%, common equity Tier 1 capital of 12.69%, and Tier 1 leverage of 10.64%.
- Operating cash flow was $95.1 million; investing activities used $115.3 million and financing activities provided $51.9 million. Cash and due from banks increased $31.6 million during the quarter.
Material changes versus the prior comparable period
- Net income increased substantially, principally because of the $9.4 million equity-investment fair-value gain, higher MSR income, lower merger-related expenses, stronger net interest income, and lower interest expense.
- Noninterest expense decreased by $7.5 million because Q1 2021 included $9.0 million of Bay Banks merger-related expenses. Excluding merger-related costs, Q1 2022 expenses increased $1.4 million.
- Mortgage banking volume and related income declined materially as rising interest rates reduced mortgage demand.
- Net interest margin expanded by approximately 44 basis points, supported by balance-sheet growth, lower funding costs, and higher accretion of acquired-loan purchase accounting discounts.
- Available-for-sale securities generated $22.6 million of pretax unrealized losses from rising market interest rates. After tax, accumulated other comprehensive loss increased by $17.8 million, largely offsetting quarterly net income in comprehensive income.
- Effective January 1, 2022, the company changed MSR accounting from the amortization method to fair value measurement, producing a $3.5 million after-tax cumulative-effect increase to equity. MSR assets were $27.7 million at March 31, 2022 versus $16.5 million under the prior method at year-end.
- The company recorded a $2.5 million provision for loan losses, primarily for loan growth and higher specific reserves on three relationships.
Outlook, risks, contingencies, and unusual items
The filing provides no specific earnings or revenue guidance. Management states that quarterly results are not necessarily indicative of full-year results. The company believes liquidity and capital are adequate and that the allowance for loan losses is appropriate, but future adjustments may be required.
- Key risks include economic and real estate downturns, interest-rate and market volatility, credit losses, deposit outflows, liquidity-market disruption, regulatory changes, cybersecurity, competition for personnel, acquisition execution, and COVID-19 or geopolitical effects.
- Fintech partnerships are a significant source of deposit growth and fee income but create operational, regulatory, credit, and counterparty risks. Management specifically identifies the need to effectively manage these partnerships.
- The available-for-sale securities portfolio had $28.4 million of gross unrealized losses at March 31, 2022. Management considered the losses primarily rate-related rather than credit-related and did not expect to be required to sell the securities before recovery.
- Outstanding commitments to extend credit were $496.2 million. Financial standby letters of credit totaled $4.7 million, and reserves for unfunded commitments were $1.0 million.
- The company had $7.7 million of future commitments to certain investment partnerships and $9.0 million of remaining SBIC fund commitments.
- A previously disclosed VCB ESOP class-action lawsuit alleges damages that approach or exceed $12 million. The company believes the claims are without merit and has accrued no loss; the outcome remains uncertain.
- The board declared a quarterly dividend of $0.1225 per share on April 6, 2022, paid April 29, 2022.
Most important facts for investors to verify
- Whether the $9.4 million equity-investment fair-value gain and $6.7 million MSR income are recurring or volatile contributors to earnings.
- The sustainability and concentration of fintech-related deposits, which reached approximately $329 million.
- Future credit performance, charge-offs, specific reserves, and the adequacy of the $12.0 million allowance as loans grow.
- The effect of higher interest rates on mortgage production, MSR valuations, securities values, deposit costs, and net interest margin.
- Potential realization of the $28.4 million securities unrealized loss if liquidity needs require sales.
- The status and potential exposure from the VCB ESOP litigation and other regulatory or legal matters.
- The company’s implementation of the expected-credit-loss accounting standard and any resulting capital or earnings impact.