Blue Ridge Bankshares, Inc. (BRBS) is a Virginia-based bank holding company that operates through its wholly-owned subsidiary, Blue Ridge Bank, National Association. The Company has a rich history dating back to 1893 when it was first established as Virginia Community Bank. Over the years, Blue Ridge Bankshares has grown through strategic acquisitions, expanding its footprint and diversifying its service offerings. Today, the Company provides a wide range of banking, wealth management, and financial services to individuals and businesses across its primary markets in Virginia.

Business Overview Blue Ridge Bankshares, Inc. was formed in 1994 when Blue Ridge Bank was founded in Charlottesville, Virginia. The Company's growth trajectory took a significant turn in 2019 with the acquisition of Virginia Community Bankshares, Inc. (VCB), which expanded Blue Ridge Bank's presence in central Virginia. However, this acquisition also brought unexpected challenges, as the Company inherited a class action lawsuit filed by a former VCB employee against the VCB Employee Stock Ownership Plan (ESOP). This legal issue was eventually resolved in the fourth quarter of 2023 with a $6 million settlement agreement.

The Company's recent history has been marked by regulatory challenges, particularly concerning its fintech operations. In August 2022, Blue Ridge Bank entered into a formal written agreement with the Office of the Comptroller of the Currency (OCC) to enhance its controls and risk management practices related to fintech operations. This regulatory oversight escalated in January 2024 when the Bank consented to a more comprehensive consent order from the OCC, which included higher minimum capital ratio requirements.

In response to these challenges and to reposition its business, Blue Ridge Bankshares has taken decisive actions. The Company completed two significant private placements in the second quarter of 2024, raising a total of $161.6 million in gross proceeds. These funds are being used to support strategic initiatives, including the planned exit from fintech banking-as-a-service depository operations by the end of 2024. Throughout these transitions, the Company has maintained a strong focus on its legacy community banking operations, serving customers in its core Virginia markets.

Financial Overview For the latest quarter ended September 30, 2024, Blue Ridge Bankshares reported net income of $0.9 million, or $0.01 per diluted common share. This represents a notable improvement from the net loss of $41.4 million, or $2.18 per diluted share, reported in the same period of the prior year. The Company's performance during the quarter reflects progress made in areas such as deposit growth, noninterest expense reduction, and nonperforming asset reduction.

Looking at the Company's full-year 2023 results, Blue Ridge Bankshares reported a net loss of $51.8 million, or $2.73 per diluted share. This loss was primarily driven by a $26.8 million goodwill impairment charge and a $6.0 million settlement related to the Company's legacy Employee Stock Ownership Plan (ESOP) litigation. Excluding these significant one-time items, the Company's normalized net income for 2023 was approximately $-22.9 million.

The Company's total assets as of September 30, 2024, stood at $2.94 billion, a decrease from $3.12 billion at the end of 2023. This decline was largely attributable to a reduction in the loan portfolio as the Company purposefully and selectively reduced assets to meet the liquidity needs of exiting its fintech banking-as-a-service (BaaS) operations, which is expected to be completed by the end of 2024.

For the most recent fiscal year 2023, Blue Ridge Bankshares reported revenue of $121.58 million, net income of -$51.77 million, operating cash flow of -$4.56 million, and free cash flow of -$4.56 million. In the most recent quarter (Q3 2024), the Company reported revenue of $38.86 million, net income of $2.14 million, operating cash flow of $27.83 million, and free cash flow of $28.04 million. Year-over-year, revenue increased by $3.51 million or 9.94%, driven by growth in deposit-related fees and wealth management income. Net income increased $43.51 million due to a recovery of credit losses, partially offset by higher noninterest expense.

Regulatory Matters and Strategic Initiatives In January 2024, Blue Ridge Bank consented to the issuance of a Consent Order by the Office of the Comptroller of the Currency (OCC), the Bank's primary regulator. The Consent Order incorporated the provisions of a previous formal written agreement and added new requirements, including the need for the Bank to submit a strategic plan and a capital plan.

In response to the Consent Order, the Company developed and submitted a three-year strategic plan that sets forth its priorities, which include remediation and compliance with the Consent Order, redefining its fintech business (including exiting fintech BaaS depository operations), refocusing on core community banking, enhancing its enterprise risk management and credit risk administration infrastructures, achieving operational efficiency, and building development and training infrastructure for its employees.

To support its strategic initiatives and strengthen its capital position, Blue Ridge Bankshares completed a series of private placements in the second quarter of 2024, raising approximately $152.1 million in net proceeds. These capital raises included the issuance of common stock, preferred stock, and warrants. The Company intends to use these funds to propel its near-term strategic priorities, including repositioning business lines, supporting organic growth, and further enhancing the Bank's capital levels to comply with the minimum capital ratios set forth in the Consent Order.

Operational and Financial Performance The Company's net interest margin declined from 3.12% in the first nine months of 2023 to 2.76% in the corresponding period of 2024, primarily due to the decrease in the Bank's fintech BaaS deposits, which were a significant and highly interest-rate sensitive component of the Company's funding mix. The reduction in fintech BaaS deposits, which bore interest rates that adjusted with changes in the federal funds rate, resulted in a relative change in deposit costs for this portion of the Company's liabilities.

During the third quarter of 2024, the Company executed an agreement to sell a nonperforming specialty finance loan, reclassifying the loan from held for investment to held for sale. Upon the completion of the sale in the third quarter, the Company recorded an $8.4 million recovery of credit losses, which partially offset the $6.7 million non-cash, after-tax negative fair value adjustment recorded in the second quarter for an equity investment in a fintech company.

The Company's noninterest income declined from $24.4 million in the first nine months of 2023 to $10.9 million in the same period of 2024, primarily due to a decrease in income from the Company's fintech BaaS deposit partnerships and the sale of the majority of its small business investment company (SBIC) investments. The decline in noninterest income was also attributable to a $1.0 million loss on the sale of a portion of the Company's mortgage servicing rights portfolio in the third quarter of 2024.

Noninterest expense decreased from $127.5 million in the first nine months of 2023 to $88.3 million in the corresponding period of 2024. This decrease was primarily due to the absence of the $26.8 million goodwill impairment charge and the $6.0 million ESOP litigation settlement recorded in 2023, as well as lower legal and regulatory costs, reduced use of third-party resources in the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) area, and lower salaries and employee benefits expense.

Liquidity and Capital Position As of September 30, 2024, the Company's Tier 1 leverage ratio was 11.46%, and its total risk-based capital ratio was 19.26%, both of which exceeded the minimum capital ratios required by the Consent Order. The Company's available liquidity, consisting of cash, fed funds sold, and unpledged securities, totaled $814.9 million as of the same date, providing ample resources to support the wind-down of its fintech BaaS operations and other strategic initiatives.

The Company's debt-to-equity ratio stood at 0.68 as of September 30, 2024. Cash and cash equivalents totaled $285.86 million as of the same date. Blue Ridge Bankshares has access to an $680.11 million line of credit with the Federal Home Loan Bank (FHLB), of which $408.95 million was available as of September 30, 2024. Additionally, the Company had a $69.62 million secured borrowing capacity with the Federal Reserve Bank (FRB) Discount Window, all of which was undrawn as of September 30, 2024.

The Company's current ratio was 0.25, and its quick ratio was 0.75 as of September 30, 2024, indicating its ability to meet short-term obligations.

Risks and Challenges Blue Ridge Bankshares faces several key risks and challenges, including the successful execution of its strategic plan to exit the fintech BaaS business, maintaining adequate liquidity and capital levels, managing the heightened regulatory oversight from the Consent Order, and mitigating the potential impact of a prolonged economic slowdown or recession on its loan portfolio and overall financial performance.

Additionally, the Company's reliance on non-core funding sources, such as brokered deposits and fintech-related deposits, has exposed it to liquidity and interest rate risks that will need to be carefully managed during the transition period. The Company's ability to replace these higher-cost funding sources with more stable, lower-cost deposits will be critical to improving its net interest margin and profitability going forward.

In December 2023, a putative shareholder class action lawsuit was filed against the company and certain officers alleging violations of federal securities laws. The company believes the claims are without merit. This legal challenge adds to the Company's existing regulatory and operational hurdles.

Business Segments Blue Ridge Bankshares operates in three main business segments:

1. Commercial Banking Segment: This segment focuses on making loans to and generating deposits from individuals and businesses while offering a wide array of general banking activities to its customers.

2. Mortgage Banking Segment: The mortgage banking division concentrates on individual and wholesale mortgage lending and sales activities.

3. Holding Company Activities Segment: Activities at the holding company or parent level are primarily associated with investments, borrowings, and certain noninterest expenses.

The Company's loan portfolio includes commercial and industrial loans, real estate construction loans, commercial real estate loans, residential real estate loans, and consumer loans. Blue Ridge Bankshares also maintains an investment securities portfolio, which includes available-for-sale securities, restricted equity investments, and other equity investments.

Outlook Blue Ridge Bankshares' management has provided limited guidance for the remainder of 2024 and beyond, as the Company remains focused on addressing the requirements of the Consent Order and completing the wind-down of its fintech BaaS operations. The Company has indicated that it expects to fully exit its fintech BaaS depository business by the end of 2024, which should help to stabilize its funding mix and allow it to redirect resources towards its core community banking activities.

Once the Company has navigated these near-term challenges, it will likely need to demonstrate a sustained period of improved financial performance, enhanced risk management capabilities, and strengthened regulatory compliance before it can begin to pursue growth opportunities and restore shareholder confidence. Investors will be closely monitoring the Company's progress in executing its strategic plan and achieving the objectives outlined in the Consent Order.

Conclusion Blue Ridge Bankshares faces a multitude of headwinds, including heightened regulatory scrutiny, the need to redefine its fintech business, and the lingering effects of past strategic missteps. However, the successful completion of the Company's private placements and its renewed focus on core community banking activities provide a foundation for long-term growth, provided the management team can effectively execute its strategic plan and address the issues outlined in the Consent Order. Investors will want to see tangible evidence of the Company's ability to stabilize its funding sources, improve its net interest margin, and restore profitability before considering Blue Ridge Bankshares as a viable long-term investment opportunity.