Blue Ridge Bankshares, Inc. (BRBS), a Virginia-based financial holding company, has faced a challenging operating environment in recent years, marked by regulatory scrutiny, industry headwinds, and the ongoing impact of the COVID-19 pandemic. Despite these obstacles, the company has demonstrated resilience, working to reposition its business and strengthen its financial position.
Business Overview
Blue Ridge Bankshares operates primarily through its wholly-owned subsidiary, Blue Ridge Bank, National Association, which provides a range of banking and financial services to individuals and businesses in its market areas. The company's operations are organized into three reportable segments: commercial banking, mortgage banking, and holding company activities.The commercial banking segment is the core of the company's business, generating the majority of its revenue and income. This segment offers a variety of loan products, including commercial and industrial loans, commercial real estate loans, construction loans, and consumer loans, as well as deposit services. The mortgage banking segment focuses on residential mortgage lending and sales activities, while the holding company segment oversees the company's investments and borrowings.
Financials
For the full year 2023, Blue Ridge Bankshares reported annual net income of -$51.8 million, annual revenue of $197.6 million, annual operating cash flow of $41.0 million, and annual free cash flow of $40.0 million. These results reflect the challenges the company has faced, including increased regulatory costs, higher funding expenses, and the impact of the COVID-19 pandemic on its lending and mortgage banking operations.In the first quarter of 2024, the company reported a net loss of $2.9 million, or ($0.15) per diluted share, compared to net income of $4.0 million, or $0.21 per diluted share, in the same period of the prior year. The net loss for the first quarter of 2024 included $2.3 million of after-tax costs related to regulatory remediation efforts.
Net interest income for the first quarter of 2024 was $20.3 million, a decline of $4.8 million from the same period in 2023, primarily due to higher funding costs, which increased 92 basis points. The company's net interest margin decreased to 2.75% in the first quarter of 2024, compared to 3.30% in the same period of the prior year.
The company recorded a recovery of credit losses of $1.0 million in the first quarter of 2024, compared to a recovery of $1.5 million in the first quarter of 2023. The recovery in the 2024 period was attributable to lower balances of unfunded loan commitments.
Noninterest income in the first quarter of 2024 increased slightly from the first quarter of 2023, primarily due to a positive fair value adjustment on the company's mortgage servicing rights, which offset lower gains on the sale of guaranteed government loans.
Noninterest expense increased $3.6 million, or 12.6%, in the first quarter of 2024 compared to the same period in 2023. Excluding regulatory remediation costs, noninterest expense increased $2.1 million, primarily due to higher salaries and employee benefits, other contractual services, audit and accounting fees, and FDIC insurance expense.
Loan Portfolio and Asset Quality
As of March 31, 2024, the company's loan portfolio totaled $2.39 billion, a decrease of $36.9 million from December 31, 2023. The decline in loans was primarily attributable to the company's efforts to wind down its fintech banking-as-a-service (BaaS) operations.Nonperforming loans, which include nonaccrual loans and loans past due 90 days and still accruing interest, decreased $9.9 million from December 31, 2023, to $53.2 million as of March 31, 2024. This decline was primarily attributable to payoffs of and cash payments applied to nonaccrual loans, including certain specialty finance loans.
The company's allowance for credit losses (ACL) decreased $868 thousand to $35.0 million as of March 31, 2024, from $35.9 million as of December 31, 2023. The ACL to total loans held for investment ratio was 1.46% as of March 31, 2024, compared to 1.48% as of December 31, 2023.
Liquidity
As of March 31, 2024, the company had total deposits of $2.47 billion, a decrease of $98.9 million from December 31, 2023. This decline was primarily due to a $162.9 million decrease in deposits related to the company's fintech partnerships, partially offset by a $64.0 million increase in time deposits.The company has access to secured funding sources, including a secured line of credit with the Federal Home Loan Bank of Atlanta (FHLB) and the Federal Reserve Bank (FRB) Discount Window. As of March 31, 2024, the company had $265.4 million in available credit on its FHLB line and $101.8 million in secured borrowing capacity through the FRB Discount Window.
Total stockholders' equity decreased by $5.1 million to $181.0 million as of March 31, 2024, compared to $186.0 million at December 31, 2023. The decrease was primarily due to a $2.6 million after-tax decline in the fair value of the company's portfolio of securities available for sale.
Regulatory Matters
On January 24, 2024, the Bank consented to the issuance of a consent order (the "Consent Order") with the Office of the Comptroller of the Currency (OCC), the Bank's primary federal banking regulator. The Consent Order generally incorporates the provisions of a previous formal written agreement between the Bank and the OCC, as well as adding new requirements.The Consent Order requires the Bank to maintain a leverage ratio of 10.0% and a total capital ratio of 13.0%, which are higher than the regulatory requirements for capital adequacy purposes. As of both March 31, 2024 and December 31, 2023, the Bank did not meet these minimum capital ratios. Until such levels are met and the Consent Order has been lifted, the Bank is deemed to be less than well capitalized, thus adequately capitalized.
Restatement
In October 2023, the company and its Audit Committee, after consultation with the company's independent registered public accounting firm and the OCC, determined that certain specialty finance loans should have been reported as nonaccrual, reserved for, or charged off in earlier periods. The company filed amendments to its prior financial reports to restate the consolidated financial statements.The company does not believe that the restatements reflect any significant financial impact on its financial condition as of March 31, 2024, or any trends in its business or prospects.
Private Placement
On April 3, 2024, the company closed and funded a private placement of securities for gross proceeds of $150.0 million. The company issued and sold 3.4 million shares of common stock, 14,150 shares of convertible preferred stock, and 7,383 warrants to purchase convertible preferred stock.The company will use the net proceeds from the private placement to reposition business lines, support organic growth, and enhance the capital levels of the Bank. The private placement is expected to have a positive impact on the Bank's capital ratios, which, on a pro forma basis as of March 31, 2024, would exceed the minimum capital ratios set forth in the Consent Order.
Outlook
Blue Ridge Bankshares faces several key risks and challenges, including the ongoing impact of the Consent Order, the need to manage the wind-down of its fintech BaaS operations, and the potential for continued pressure on net interest margins due to the rising interest rate environment.The company's ability to meet the minimum capital ratios required by the Consent Order and ultimately have the order lifted will be a critical focus area. Additionally, the company's success in repositioning its business and enhancing its financial performance will be crucial to its long-term sustainability.
Despite these challenges, the company's recent private placement and its efforts to strengthen its balance sheet and liquidity position provide a foundation for future growth and stability. As the company navigates the current environment, investors will be closely monitoring its progress in addressing regulatory concerns, improving profitability, and positioning itself for long-term success.