Blue Ridge Bankshares, Inc. — Form 10-Q Summary
Business context and reporting period
Blue Ridge Bankshares, Inc. is a bank holding company operating primarily through Blue Ridge Bank, N.A. and a wealth and trust management subsidiary. The filing covers the unaudited quarter ended March 31, 2023, compared primarily with the quarter ended March 31, 2022 and the balance sheet at December 31, 2022. The company reports commercial banking, mortgage banking, and holding company activities.
Key financial metrics
| Metric | Q1 2023 | Comparable period or prior date |
|---|---|---|
| Total assets | $3.335 billion | $3.141 billion at Dec. 31, 2022 |
| Total deposits | $2.761 billion | $2.503 billion at Dec. 31, 2022 |
| Loans held for investment, net | $2.419 billion | $2.376 billion at Dec. 31, 2022 |
| Net interest income | $27.4 million | $23.7 million in Q1 2022 |
| Net interest margin | 3.58% | 3.87% in Q1 2022 |
| Provision for credit losses | $3.7 million | $2.5 million in Q1 2022 |
| Noninterest income | $7.3 million | $24.1 million in Q1 2022 |
| Noninterest expense | $28.8 million | $22.7 million in Q1 2022 |
| Net income from continuing operations | $1.6 million | $17.4 million in Q1 2022 |
| Diluted EPS from continuing operations | $0.09 | $0.93 in Q1 2022 |
| Cash provided by operating activities | $14.4 million | $95.1 million in Q1 2022 |
Interest income rose to $43.1 million from $25.8 million, primarily because of loan growth and higher yields. Interest expense increased sharply to $15.7 million from $2.1 million as deposit and FHLB funding costs increased. Total assets increased $193.9 million from year-end 2022, while cash and due from banks increased $149.1 million to $226.4 million.
Stockholders’ equity was $257.6 million at March 31, 2023, compared with $259.4 million at December 31, 2022. Accumulated other comprehensive loss improved to $41.2 million from $45.1 million, primarily because of higher values for available-for-sale securities.
Material changes versus prior comparable periods
- Net income declined substantially because Q1 2022 included $9.4 million of favorable fair-value adjustments on other equity investments, while Q1 2023 included a $51 thousand loss.
- Residential mortgage banking income declined to $1.3 million from $9.6 million as higher interest rates reduced mortgage volume. Mortgage volume was approximately $46.3 million in Q1 2023 compared with $151.4 million in Q1 2022.
- Net interest income increased $3.7 million, but net interest margin compressed 29 basis points as funding costs rose faster than asset yields.
- Noninterest expense increased 27.1%, including $1.1 million of regulatory remediation costs, higher salaries, legal expense, data processing, communications, and FDIC insurance costs.
- Deposits increased $258.5 million, primarily from a $304.4 million increase in time deposits. Approximately $293.0 million of the increase represented brokered time deposits acquired amid industry liquidity concerns.
- The allowance for credit losses increased to $30.0 million from $22.9 million, including a $4.0 million increase from adoption of CECL on January 1, 2023.
Credit quality, liquidity, debt, and capital
- Nonperforming loans increased to $30.7 million, or 1.25% of loans, from $18.6 million, or 0.77%, at December 31, 2022. Nonaccrual loans increased to $28.6 million, primarily because two commercial loans totaling $13.0 million were placed on nonaccrual status.
- The ACL was 1.22% of total loans and covered 97.56% of nonperforming loans. Management stated that the ACL was adequate, while acknowledging that future economic or borrower changes could require additional provisions.
- The company adopted CECL using the modified retrospective method. The adoption reduced retained earnings by $5.5 million after tax and increased the reserve for unfunded commitments by $3.7 million.
- FHLB borrowings were $239.1 million, compared with $311.7 million at year-end. Subordinated notes were $39.9 million. The company also had an undrawn BTFP line of approximately $29.8 million and $270.1 million of remaining FHLB borrowing availability after advances and letters of credit.
- Cash and due from banks totaled $226.4 million. Q1 cash flow included $14.4 million from operating activities, $49.2 million used in investing activities, and $183.9 million from financing activities, producing a $149.1 million increase in cash.
- The Bank was categorized as well capitalized. At March 31, 2023, total risk-based capital was 11.12%, common equity tier 1 capital was 10.06%, and the tier 1 leverage ratio was 8.50%.
Outlook, management commentary, risks, and unusual items
- The Bank remains subject to an August 2022 formal written agreement with the OCC concerning fintech-partnership controls, third-party risk, Bank Secrecy Act/anti-money-laundering compliance, and information technology risk. Management stated that remediation is progressing but requires considerable time for completion, validation, and sustainability.
- Fintech-related deposits were approximately $716.0 million, or 27.6% of total deposits. Estimated uninsured deposits were approximately $898 million, or 32% of total deposits.
- Interest-rate sensitivity modeling indicated that an instantaneous 300-basis-point rate increase could reduce projected net interest income by 11.8% in year one and 9.2% in year two. Management cautioned that these stress scenarios are not forecasts.
- A $37.3 million commercial and industrial loan modified during Q1 failed to make a contractually due payment at the end of April 2023. An amendment was under negotiation, and management stated that the loan remained adequately collateralized.
- The company is defending a VCB employee stock ownership plan lawsuit in which alleged damages approach or exceed $12 million. No loss has been accrued because management believes the claims are without merit, but the outcome is uncertain.
- The company declared and paid a quarterly dividend of $0.1225 per share in April 2023.
- Management identified risks related to deposit flows, liquidity, interest rates, real estate concentrations, credit quality, regulatory compliance, fintech partnerships, uninsured deposits, cybersecurity, litigation, and the ability to maintain capital and dividends.
Important facts for investors to verify
- Trend in nonperforming loans, especially the $37.3 million modified commercial loan and the two commercial loans placed on nonaccrual status.
- Sustainability and cost of the increased brokered and fintech-related deposit base, including uninsured deposit exposure.
- Progress and potential financial effects of the OCC written agreement and related regulatory remediation.
- Whether rising deposit and borrowing costs continue to compress net interest margin.
- Future provisions, charge-offs, and CECL allowance adequacy as loan growth and real estate exposure continue.
- Performance of mortgage banking, fair-value-sensitive equity investments, and mortgage servicing rights, which materially affected prior-period results.
- Liquidity availability under the FHLB and BTFP facilities and the company’s ability to retain deposits during market stress.
- Potential exposure from the VCB ESOP litigation and other commitments, including $707.9 million of loan commitments and $17.7 million of investment commitments.