Blue Ridge Bankshares, Inc. — Q1 2024 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 three months ended March 31, 2024, with comparative results for the three months ended March 31, 2023. The interim financial statements are unaudited and reflect previously disclosed restatements of certain 2023 specialty finance loan accounting.
Key financial metrics
| Metric | Q1 2024 / March 31, 2024 | Comparable / December 31, 2023 |
|---|---|---|
| Total assets | $3.08 billion | $3.12 billion |
| Loans held for investment, net | $2.36 billion | $2.40 billion |
| Total deposits | $2.47 billion | $2.57 billion |
| Stockholders’ equity | $180.9 million | $186.0 million |
| Net interest income | $20.3 million | $25.2 million in Q1 2023 |
| Total noninterest income | $7.8 million | $7.3 million in Q1 2023 |
| Total noninterest expense | $32.5 million | $28.8 million in Q1 2023 |
| Net income/(loss) | $(2.9) million; $(0.15) diluted EPS | $4.0 million; $0.21 diluted EPS in Q1 2023 |
| Net interest margin | 2.75% | 3.30% in Q1 2023 |
| Allowance for credit losses | $35.0 million; 1.46% of loans | $35.9 million; 1.48% of loans |
- Interest income increased to $42.5 million from $40.9 million, but interest expense increased to $22.2 million from $15.7 million. The increase primarily reflected higher deposit funding costs and greater use of time deposits and borrowings.
- Average interest-bearing liabilities increased $242.0 million year over year, while their average cost increased to 3.68% from 2.89%. Total cost of funds increased to 3.03% from 2.11%.
- The company recorded a $1.0 million recovery of credit losses, compared with a $1.5 million recovery in Q1 2023. Net charge-offs were $868 thousand, compared with $1.1 million in the prior-year quarter.
- Cash and due from banks plus restricted cash totaled $128.2 million at March 31, 2024, compared with $226.4 million at March 31, 2023. Cash flow from operating activities was negative $7.5 million, while investing activities provided $44.7 million and financing activities used $30.2 million.
- FHLB borrowings were $280.0 million and FRB borrowings were $65.0 million at quarter-end. The company also had $39.8 million of subordinated notes outstanding.
Material changes versus prior comparable periods
- Net interest income declined $4.8 million, or approximately 19%, primarily because funding costs rose faster than asset yields. Net interest margin declined 55 basis points.
- The company reported a $2.9 million net loss versus $4.0 million of net income in Q1 2023. Noninterest expense increased $3.6 million, including regulatory remediation costs of $2.6 million versus $1.1 million in the prior-year period.
- Noninterest income increased $542 thousand. Mortgage servicing rights generated $729 thousand of income versus a $1.9 million loss in Q1 2023, but gains on sales of guaranteed government loans declined to $110 thousand from $2.4 million.
- Total assets decreased $41.4 million from year-end, primarily because loans held for investment declined $36.9 million. Management stated that the balance-sheet contraction supports the wind-down of the bank’s fintech banking-as-a-service operations.
- Total deposits declined $100.3 million. Fintech-related deposits fell $162.9 million to $303.0 million, or 12.3% of total deposits, from $465.9 million, or 18.2%, at year-end. Time deposits increased $64.0 million.
- Nonperforming loans declined to $53.2 million, or 2.22% of loans, from $63.1 million, or 2.59%, at year-end. Nonaccrual loans declined to $50.9 million from $60.0 million.
- Available-for-sale securities had a $61.5 million gross unrealized loss at March 31, 2024, compared with $58.6 million at year-end. The company attributed the losses primarily to interest-rate changes and reported no securities ACL.
Guidance, outlook, management commentary, risks and unusual items
- No formal earnings or financial guidance is provided. Management expects to use the balance-sheet contraction, secured funding facilities, core deposit growth and private-placement proceeds to support liquidity and the fintech BaaS wind-down.
- On April 3, 2024, after quarter-end, the company completed a $150.0 million private placement consisting of common stock, convertible Series B and Series C preferred stock, and warrants. Management expects to use the proceeds to reposition business lines, support organic growth and enhance bank capital.
- As reported at March 31, 2024, the bank did not meet the OCC Consent Order’s required 10.00% leverage ratio and 13.00% total capital ratio. The reported ratios were 7.44% and 10.51%, respectively. A pro forma presentation assuming $100.0 million of the placement proceeds was contributed to the bank showed a 10.57% leverage ratio and 14.42% total capital ratio.
- The January 2024 OCC Consent Order adds deadlines, strategic and capital plan requirements, enhanced controls and further restrictions on fintech activities. The bank is considered adequately, but not well, capitalized while subject to the order and may face higher FDIC insurance costs and restrictions on growth and activities.
- The bank is prohibited from soliciting, accepting, renewing or rolling over brokered deposits except as permitted under applicable restrictions. It applied to the FDIC for a waiver. Brokered deposits were $514.1 million, or approximately 20.8% of total deposits, at quarter-end.
- A $29.8 million specialty finance loan remained nonaccrual and had a $9.6 million specific reserve. The company received $1.5 million of additional cash payments on this loan after quarter-end.
- The company disclosed a putative securities class action alleging misstatements and omissions in SEC filings; no loss was accrued. A separate VCB ESOP matter is subject to a proposed $6.0 million settlement, with final court approval expected in June 2024.
- Preferred stock issued in the private placement carries a 15.0% cumulative dividend, senior liquidation rights and potential board appointment rights if dividends remain unpaid. Subject to shareholder approvals, the preferred stock and warrants could convert into or be exercised for substantial additional common shares, creating significant dilution.
- Interest-rate sensitivity modeling indicates that an instantaneous 400-basis-point increase could reduce projected year-one net interest income by $11.0 million, or 13.1%, although management cautions that these scenarios are not forecasts.
Most important facts for investors to verify
- Whether the private-placement proceeds were fully contributed to the bank and whether the bank continues to satisfy the OCC Consent Order capital requirements.
- Progress, costs and restrictions associated with the OCC Consent Order, fintech BaaS wind-down and related remediation efforts.
- Deposit retention, brokered-deposit waiver status, uninsured deposit levels and available secured borrowing capacity.
- Performance, collateral values, reserves and recovery prospects for the specialty finance and other nonaccrual loans.
- Whether elevated deposit costs continue to pressure net interest margin and earnings.
- Final approval and funding of the VCB ESOP settlement and developments in the securities class action.
- Shareholder approvals, conversion terms, preferred dividends and potential dilution from the preferred stock and warrants.