Blue Ridge Bankshares, Inc. 2020 Form 10-K Summary
Business context and reporting period
Blue Ridge Bankshares, Inc. is a Virginia bank holding company operating primarily through Blue Ridge Bank, N.A. The Bank provided commercial and consumer banking, mortgage banking, payroll processing, investment and related financial services through 14 full-service offices in central Virginia and north-central North Carolina at December 31, 2020. The filing covers the fiscal year ended December 31, 2020; the source does not provide separate fourth-quarter results.
At year-end, the Company reported approximately $1.50 billion of assets, $995.3 million of gross loans held for investment, $178.6 million of loans held for sale, $945.1 million of deposits and $108.2 million of stockholders’ equity. Fintech partnerships contributed approximately $47.0 million of deposits.
Financial performance and condition
| Metric | 2020 | 2019 |
|---|---|---|
| Interest income | $54.5 million | $30.9 million |
| Net interest income | $44.5 million | $21.4 million |
| Provision for loan losses | $10.5 million | $1.7 million |
| Noninterest income | $56.8 million | $18.8 million |
| Noninterest expense | $68.4 million | $32.8 million |
| Net income attributable to the Company | $17.7 million | $4.6 million |
| Basic and diluted EPS | $3.11 | $1.10 |
| Net interest margin | 3.49% | 3.35% |
| Return on average assets | 1.44% | 0.61% |
| Return on average equity | 17.65% | 6.94% |
| Efficiency ratio | 67.49% | 81.78% |
Mortgage banking was the largest growth driver. Residential mortgage banking income increased to $44.5 million from $14.4 million, mortgage volume exceeded $1.0 billion, and the Company began retaining servicing rights, generating $7.1 million of mortgage servicing rights income. Mortgage banking revenue represented approximately 78.2% of total noninterest income.
Net cash used in operating activities was $108.3 million, compared with $20.6 million in 2019, primarily reflecting mortgage loan origination and sale activity. Net cash used in investing activities was $340.9 million, including a $345.4 million increase in loans held for investment. Financing activities provided $507.1 million, including deposit growth, Federal Reserve advances and the issuance of $15.0 million of subordinated debt. Cash and due from banks increased to $117.9 million.
At December 31, 2020, FHLB borrowings were $115.0 million and Federal Reserve borrowings were $281.7 million, primarily PPPLF advances secured by PPP loans. Subordinated debentures totaled $24.5 million, including the 2020 Note and 2015 Notes. The Company reported $177.1 million of FHLB credit availability and $38.0 million of unused unsecured federal funds lines.
The Bank remained well capitalized. At year-end, total risk-based capital was 13.10%, Tier 1 capital was 11.84%, common equity Tier 1 capital was 11.84%, and the Tier 1 leverage ratio was 8.34%. The allowance for loan losses increased to $13.8 million, or 1.40% of loans held for investment, from $4.6 million, or 0.71%, in 2019.
Material changes versus the prior comparable period
- Total assets increased 55.9% to $1.50 billion, deposits increased 30.9% to $945.1 million, and stockholders’ equity increased 17.2% to $108.2 million.
- Gross loans held for investment increased 53.7% to $995.3 million, including $292.1 million of PPP loans at year-end. The Company originated approximately $363.4 million of PPP loans, of which approximately $71.3 million had been forgiven or repaid before year-end.
- Net interest income more than doubled, primarily from balance-sheet growth and PPP lending. PPP-related net interest and fees contributed approximately $9.6 million during 2020.
- Noninterest income increased 202.3%, while noninterest expense increased 108.2%, reflecting mortgage expansion, higher employee compensation and increased operating costs.
- The provision for loan losses increased by $8.7 million, including a $9.2 million COVID-19 severity factor applied to higher-risk industries such as restaurants and hospitality. Net charge-offs increased to $1.2 million from $750 thousand.
- Nonperforming assets increased to $6.6 million from $5.2 million but declined as a percentage of assets to 0.44% from 0.54%. There was no other real estate owned at year-end.
- The Company issued a $15.0 million subordinated note in May 2020, bearing 6.00% interest through June 2025 and thereafter SOFR plus 587 basis points, subject to the note’s terms.
Outlook, commentary, risks and unusual items
The Company did not provide quantitative earnings guidance. Management stated that liquidity and capital were adequate and that the Bank was well capitalized. The Company had not elected the community bank leverage ratio framework.
COVID-19 created significant uncertainty around borrower repayment capacity, collateral values, loan-loss estimates, interest margins, mortgage demand, operations, fraud and cybersecurity. The Company approved more than 550 COVID-related loan deferrals totaling $110.6 million; at December 31, 2020, eight loans totaling $6.3 million remained outside normal payment schedules. CARES Act accounting relief meant qualifying COVID-related modifications were not designated as troubled debt restructurings at year-end.
The Company completed its acquisition of Bay Banks of Virginia and Virginia Commonwealth Bank on January 31, 2021. It issued 6,627,558 shares of common stock, with reported fair value of approximately $124.8 million, plus cash for fractional shares. The transaction added 17 banking offices and materially expanded the Company’s Virginia market footprint. Integration execution, cost savings, customer retention and post-merger credit quality are key forward-looking considerations.
Other material risks include concentration in commercial and real estate lending, interest-rate and liquidity risk, reliance on mortgage banking income, dependence on wholesale and Federal Reserve funding, regulatory and compliance costs, cybersecurity and third-party technology risks, thin trading volume in the common stock, the pending VCB ESOP class action alleging damages approaching or exceeding $12 million, and the transition away from LIBOR. The filing states that management believes the ESOP claims are without merit, but the outcome remains uncertain.
Important facts for investors to verify
- Whether the elevated 2020 mortgage banking revenue and margin performance are sustainable after refinancing activity and low interest rates normalize.
- The forgiveness, repayment status and remaining fee accretion of PPP loans, including the potential effect of any change in government guarantees.
- Credit performance in commercial real estate, construction, hospitality, restaurant and other COVID-sensitive portfolios, and whether the $13.8 million allowance remains adequate.
- The Company’s post-January 2021 Bay Banks integration progress, actual synergies, expense levels, deposit retention and resulting capital ratios.
- Liquidity dependence on $281.7 million of PPPLF advances, $115.0 million of FHLB borrowings and other wholesale funding sources.
- The status and potential financial exposure of the VCB ESOP litigation and any other contingencies.
- Future dividend capacity, regulatory restrictions and the impact of the announced three-for-two stock split and subsequent dividend.
- Management’s implementation of expected-loss accounting under ASU 2016-13, which the Company expected to adopt for fiscal years beginning after December 15, 2022.