Blue Ridge Bankshares, Inc. 2019 Form 10-K Summary
Business context and reporting period
Blue Ridge Bankshares, Inc. is a Virginia bank holding company headquartered in Charlottesville. Through Blue Ridge Bank, N.A. and financial-services affiliates, it provides commercial and consumer banking, mortgage banking, investment, insurance and payroll-processing services across central Virginia, north-central North Carolina and selected other states. The filing covers the fiscal year ended December 31, 2019; it does not provide a separate fourth-quarter income statement.
The Company completed its acquisition of Virginia Community Bankshares, Inc. on December 15, 2019, acquiring approximately $242.5 million of assets and assuming approximately $219.2 million of liabilities. It issued 1,312,919 shares and paid $16.6 million in cash to VCB shareholders. It also acquired a 35% interest in Hammond Insurance Agency and acquired LenderSelect Mortgage Group on December 31, 2019.
Key financial metrics
| Metric | 2019 | 2018 | Change or observation |
|---|---|---|---|
| Total assets | $960.8 million | $539.6 million | Increased primarily from the VCB acquisition and organic growth |
| Loans held for investment, net of unearned income | $646.8 million | $414.9 million | Increased 55.9% |
| Loans held for sale | $55.6 million | $29.2 million | Increased 90.3% |
| Total deposits | $722.0 million | $415.0 million | Increased 74.0% |
| Shareholders’ equity | $92.3 million | $39.6 million | Increased through stock issuance, acquisition accounting and earnings |
| Total borrowings excluding subordinated debt | $124.8 million | $73.1 million | FHLB funding increased to support growth |
| Total interest income | $30.9 million | $22.4 million | Increased 37.7% |
| Net interest income | $21.4 million | $17.3 million | Increased 23.6% |
| Net interest margin | 3.34% in selected data; 3.48% in MD&A | 3.88% | 2019 value is inconsistent within the filing; both figures should be verified |
| Provision for loan losses | $1.7 million | $1.2 million | Increased with portfolio growth and mix changes |
| Noninterest income | $18.8 million | $10.1 million | Increased primarily from mortgage loan sales |
| Noninterest expense | $32.8 million | $20.5 million | Increased 60.5%, reflecting staffing, expansion and merger costs |
| Net income attributable to Blue Ridge Bankshares | $4.580 million | $4.560 million | Statements show modest growth; MD&A describes 2019 net income as approximately $4.8 million |
| Basic and diluted EPS | $1.10 | $1.64 | Declined due largely to the increase in average shares outstanding |
| Return on average assets | 0.61% | 0.95% | Declined |
| Return on average equity | 6.94% | 12.02% | Declined |
| Nonperforming assets | $5.2 million, or 0.54% of assets | $7.7 million, or 1.42% of assets | Improved year over year |
Mortgage-related activity was a major contributor to noninterest income. Mortgage brokerage income was $4.0 million and gains on mortgage sales were $10.4 million in 2019, compared with $2.7 million and $4.5 million, respectively, in 2018. Mortgage banking income represented approximately 50.1% of total noninterest income.
Cash flow from operations was negative $15.1 million, compared with negative $4.6 million in 2018, principally reflecting growth in loans held for sale and mortgage originations. Investing cash flow was negative $100.2 million, while financing cash flow was positive $160.3 million, driven by deposit growth, net FHLB advances and a $22.1 million common-stock issuance. Cash and due from banks increased to $60.0 million from $15.0 million.
Material changes versus the prior comparable period
- Balance-sheet scale expanded substantially following the VCB acquisition and continued loan, deposit and securities growth.
- Net interest income increased, but the net interest margin declined from 3.88% in 2018. Interest expense rose as deposit costs and borrowings increased.
- Noninterest income increased sharply because of higher mortgage production and sales, investment gains and life-insurance income.
- Noninterest expense increased materially because of hiring, new and expanded locations, mortgage expansion, VCB merger expenses and core-system integration costs.
- The allowance for loan losses increased to $4.6 million from $3.6 million; net charge-offs increased to $750,000 from $448,000.
- Credit quality improved overall: nonperforming loans declined to $5.2 million from $7.5 million, and other real estate owned declined to zero from $134,000.
- The securities portfolio expanded significantly, with available-for-sale securities increasing to $108.6 million from $38.0 million.
- Average common shares outstanding increased to 4.147 million from 2.779 million, reducing EPS despite relatively stable consolidated net income.
Guidance, outlook, risks and unusual items
The filing provides no quantified earnings or revenue guidance. Management emphasizes continued growth, integration of VCB, mortgage and community-banking expansion, liquidity management and maintenance of strong regulatory capital. The Company was evaluating whether to adopt the community bank leverage ratio framework beginning in 2020.
- The Bank was categorized as well capitalized at December 31, 2019. Its total risk-based capital ratio was 11.82%, Tier 1 risk-based capital was 11.14%, common equity Tier 1 capital was 11.14% and Tier 1 leverage was 8.00%.
- The Company reported $85.8 million of remaining FHLB credit availability after considering a $220.6 million facility, $134.8 million of outstanding borrowings and a $10 million letter of credit. It also had $21 million of unsecured correspondent-bank federal-funds lines that were undrawn.
- The loan portfolio is concentrated in real estate: approximately 66.3% of loans were real-estate secured, including $251.8 million of commercial real estate loans and $64.7 million of construction and land-development loans.
- Interest-rate risk remains material. Management characterized the balance sheet as slightly asset sensitive; modeled one-year net interest income increased 12.0% under a 100-basis-point rate increase and declined 5.9% under a 200-basis-point decline.
- COVID-19 emerged after year-end and was identified as a material subsequent-event risk affecting borrowers, loan demand, credit losses, operations, liquidity and mortgage activity. The filing does not quantify its financial impact.
- The Company assumed potential liability in an ESOP class-action lawsuit arising from VCB. The complaint alleges damages approaching or exceeding $12 million; the Company states that the claims are without merit, but the outcome is uncertain.
- The $10 million subordinated notes mature December 1, 2025, bear interest at 6.75% through December 1, 2020 and then reset to LIBOR plus 512.8 basis points. LIBOR discontinuation creates transition and litigation risk.
- The Company became publicly traded in connection with the VCB acquisition and expects higher public-company compliance and reporting expenses.
- Implementation of the expected-credit-loss standard was still under evaluation, with parallel implementation activities planned for 2020. The filing does not provide an estimated adoption impact.
Important facts for investors to verify
- Reconcile the filing’s inconsistent 2019 net-income references: approximately $4.8 million in MD&A versus $4.604 million consolidated net income and $4.580 million attributable to the Company in the financial statements.
- Reconcile the inconsistent 2019 net interest margin disclosures of 3.34% and 3.48%.
- Assess the sustainability of mortgage-driven noninterest income and the effect of lower rates and economic stress on mortgage volumes.
- Review post-acquisition integration results, merger expenses, deposit retention, cost synergies and any changes in goodwill or intangible-asset valuations.
- Monitor commercial real estate, construction and acquired VCB loan performance, allowance adequacy and credit-loss trends after COVID-19.
- Evaluate liquidity and refinancing exposure, including the $124.8 million of FHLB borrowings scheduled to mature in 2020 and reliance on wholesale funding.
- Track the ESOP litigation, potential settlement exposure and any related reserve or disclosure changes.
- Confirm the Company’s decision regarding the community bank leverage ratio framework and the effect of subsequent regulatory changes.