Blue Ridge Bankshares, Inc. — Form 10-Q Summary
Business context and reporting period
Blue Ridge Bankshares, Inc. is a Virginia-based bank holding company operating through Blue Ridge Bank, N.A., mortgage banking operations, and MoneyWise Payroll Solutions. The company serves Virginia markets and operates as Carolina State Bank in Greensboro, North Carolina, with mortgage offices in several states. This unaudited report covers the three months ended March 31, 2020, compared primarily with the three months ended March 31, 2019 and December 31, 2019 balance-sheet amounts.
The quarter reflected the December 2019 acquisition of Virginia Community Bankshares, Inc. and the onset of the COVID-19 pandemic. The company had 5,659,485 common shares outstanding as of May 15, 2020.
Financial performance and condition
| Metric | March 31, 2020 / Q1 2020 | Comparable period or prior date |
|---|---|---|
| Total assets | $1.028 billion | $960.8 million at December 31, 2019 |
| Total loans held for investment, net of unearned income | $670.9 million | $646.8 million at December 31, 2019 |
| Loans held for sale | $90.0 million | $55.6 million at December 31, 2019 |
| Total deposits | $769.2 million | $722.0 million at December 31, 2019 |
| FHLB borrowings | $140.9 million | $124.8 million at December 31, 2019 |
| Stockholders’ equity | $90.3 million | $92.3 million at December 31, 2019 |
| Total interest income | $10.4 million | $6.7 million in Q1 2019 |
| Net interest income | $8.0 million | $4.8 million in Q1 2019 |
| Provision for loan losses | $575 thousand | $295 thousand in Q1 2019 |
| Non-interest income | $5.0 million | $3.9 million in Q1 2019 |
| Non-interest expense | $11.3 million | $6.8 million in Q1 2019 |
| Net income | $841 thousand | $1.282 million in Q1 2019 |
| Net income attributable to Blue Ridge | $832 thousand | $1.269 million in Q1 2019 |
| Basic and diluted EPS | $0.15 | $0.38 in Q1 2019 |
| Net interest margin | 3.71% | 3.70% in Q1 2019 |
Average interest-earning assets increased to $865.3 million from $523.5 million, primarily due to the VCB acquisition. Net interest income increased 65.5%, while interest income rose 56.1% and interest expense rose 31.7%. The effective income tax rate was 24.1%, compared with 20.0% in Q1 2019.
Operating cash flow was negative $45.1 million, compared with negative $1.6 million in Q1 2019, primarily reflecting loan-originations and increases in other assets. Investing cash flow was negative $11.0 million, while financing cash flow was positive $63.2 million, including a $47.1 million increase in deposits and net FHLB borrowings of $16.1 million. Cash and due from banks increased to $67.2 million from $60.0 million at year-end.
Material changes versus prior periods
- Total assets increased $66.8 million, or 6.9%, from year-end 2019. Loans held for investment increased 3.7%, and loans held for sale increased 61.2%.
- Deposits increased $47.2 million, or 6.5%, while FHLB borrowings increased $16.1 million. The weighted-average FHLB borrowing rate declined from 1.92% to 1.43%.
- The allowance for loan losses increased to $4.9 million, or 0.73% of loans held for investment, from $4.6 million, or 0.71%. Net charge-offs were $250 thousand versus $131 thousand in Q1 2019.
- Non-performing assets declined slightly to $5.1 million, or 0.50% of total assets, from $5.2 million, or 0.54%, at December 31, 2019. Nonaccrual loans were $4.2 million and loans 90 days or more past due and accruing were $872 thousand.
- Non-interest expense increased 65.5%, largely due to personnel retained in the VCB acquisition and the late-2019 LenderSelect Mortgage Group acquisition. Mortgage gain-on-sale income increased to $3.0 million from $2.0 million, although mortgage brokerage income declined to $820 thousand from $1.1 million.
- Accumulated other comprehensive income declined from a $229 thousand gain to a $2.754 million loss, primarily from unrealized losses on interest-rate swaps and securities. Comprehensive income was a loss of $2.1 million, compared with income of $1.5 million in Q1 2019.
Guidance, outlook, risks and unusual items
- Management did not provide formal full-year earnings guidance. It stated that quarterly results are not necessarily indicative of 2020 results.
- COVID-19 caused branch shifts to drive-through and digital channels, a move from loan origination toward portfolio maintenance, and an aggressive borrower-outreach and deferral program. As of May 11, 2020, 459 deferrals covered $97.7 million of outstanding loans. The filing states that the financial-statement impact cannot yet be quantified.
- The company expected to earn approximately $9.0 million in SBA processing fees from PPP loans approved in April 2020, subject to borrowers completing the closing process.
- COVID-19 risks include higher credit losses, declining collateral values, reduced asset yields and margins, operational disruptions, lower demand, PPP-related liability or litigation, cyber fraud, and difficulty assessing deterioration while deferrals are outstanding.
- The Bank was considered well capitalized at March 31, 2020. Reported ratios were 11.52% total capital, 10.84% Tier 1 capital, 8.43% Tier 1 leverage, and 10.84% CET1 capital.
- Liquidity included $132.2 million of remaining FHLB availability and $38.0 million of unused unsecured federal-funds lines. Management stated that liquidity and capital were adequate.
- Standby letters of credit totaled $3.6 million, and unused commitments to extend credit totaled $121.9 million.
- The company assumed potential liability in an ESOP-related class action inherited through the VCB acquisition. The complaint alleges damages approaching or exceeding $12 million; management believes the claims are without merit.
- The company declared a quarterly dividend of $0.1425 per share on April 7, 2020, payable April 30, 2020.
- The company entered into additional interest-rate hedges beginning in 2020. The filing reports a $3.164 million pretax unrealized loss on interest-rate swaps during the quarter and $4.6 million of cash collateral posted with the counterparty.
Important facts for investors to verify
- Whether COVID-19 loan deferrals convert into sustained delinquencies, nonaccrual loans, charge-offs, or materially higher provisions.
- The actual volume, profitability, repayment performance, and potential liability associated with PPP loans and the expected processing fees.
- Whether the VCB and LenderSelect acquisitions deliver expected revenue, expense synergies, and credit performance.
- Future trends in net interest margin following Federal Reserve rate cuts, deposit repricing, and the company’s interest-rate hedging activity.
- Liquidity availability, deposit stability, FHLB collateral capacity, and compliance with well-capitalized regulatory thresholds under stress.
- The outcome and potential financial exposure from the VCB-related ESOP litigation.
- Changes in the allowance methodology and the eventual implementation impact of the current expected credit loss standard.