Blue Ridge Bankshares, Inc. (BRBS) is a bank holding company headquartered in Richmond, Virginia, with its primary subsidiary, Blue Ridge Bank, National Association, operating 27 full-service banking offices across Virginia and North Carolina. The company also offers wealth management and trust services through its subsidiary, BRB Financial Group, Inc. Over the past several years, Blue Ridge has undergone significant changes as it navigates a complex regulatory landscape and repositions itself as a community-focused bank.
Business Overview and History
Blue Ridge Bankshares, Inc. was incorporated under the laws of the Commonwealth of Virginia in July 1988 and serves as the bank holding company for its wholly-owned subsidiary, Blue Ridge Bank, National Association. The company's roots can be traced back to 1893 when Page Valley Bank of Virginia first opened its doors. Over the years, Blue Ridge has grown through strategic mergers and acquisitions. In 2019, the company acquired Virginia Community Bankshares, Inc., which added $1.22 billion in assets and $1.03 billion in deposits, as well as expanded the Bank's footprint east through the greater Richmond region, the Northern Neck region, Middlesex County, and the Hampton Roads region of Virginia. In 2021, Blue Ridge completed the merger with Bay Banks of Virginia, Inc., further expanding the bank's operating area.
Starting in 2019, Blue Ridge's business model evolved to include a focus on partnerships with financial technology (fintech) companies. These fintech relationships served as a source of loan and deposit growth, interest and noninterest income, and technology-related solutions. By the end of 2023, fintech-related deposits comprised 18.2% of total deposits. However, the company's fintech operations also exposed it to increased operational, compliance, and reputational risks, leading to regulatory scrutiny.
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 Consent Order incorporated prior regulatory directives and added new provisions, requiring the Bank to enhance its policies, procedures, and practices, as well as place further restrictions on the Company's fintech operations. In response to these challenges, Blue Ridge made the decision to exit its fintech banking-as-a-service (BaaS) depository operations due to the heightened risk profile associated with these activities.
Financial Performance and Liquidity
Blue Ridge's financial performance has been impacted by the costs associated with remediating the issues identified in the Consent Order, as well as the decline in its fintech-related business. For the year ended December 31, 2024, the company reported a net loss of $15.4 million, or $0.31 per diluted share, compared to a net loss of $51.8 million, or $2.73 per diluted share, in the prior year. The 2024 net loss included $3.6 million in regulatory remediation expenses and a $8.5 million impairment charge related to the company's investment in a fintech company.
Blue Ridge's net interest income declined from $93.0 million in 2023 to $78.7 million in 2024, primarily due to lower average balances of loans held for investment and higher rates paid on deposits, particularly time deposits. The company's net interest margin decreased from 3.07% in 2023 to 2.77% in 2024, reflecting the impact of the wind-down of its fintech BaaS deposit operations.
For the full year 2024, Blue Ridge reported total revenue of $160.3 million, with operating cash flow of -$6.3 million and free cash flow of -$6.9 million. In the most recent quarter (Q4 2024), the company reported revenue of $21.8 million, representing a 12.5% decrease year-over-year, and a net loss of $2.0 million, a 62.6% decrease from Q4 2023. The decrease in revenue and net income was primarily attributable to lower mortgage banking income and increased interest expense on deposits.
To support its transformation and enhance its capital levels, Blue Ridge completed a $161.6 million private placement of common and preferred stock in the second quarter of 2024. As of December 31, 2024, the company's total assets were $2.74 billion, with total deposits of $2.18 billion and stockholders' equity of $327.8 million. The company's capital ratios exceeded the minimum levels required by the Consent Order, with a total risk-based capital ratio of 17.26% and a Tier 1 leverage ratio of 11.80% for the bank.
Blue Ridge's liquidity position remained stable, with cash and cash equivalents of $173.5 million as of December 31, 2024. The company had a debt-to-equity ratio of 0.61, a current ratio of 1.14, and a quick ratio of 1.07. Available credit lines included $696.0 million in borrowing capacity from the Federal Home Loan Bank (FHLB), with $150.0 million outstanding, $105.7 million in borrowing capacity from the Federal Reserve Bank (FRB) Discount Window, and a $10.0 million unsecured line of credit, both with no outstanding advances as of year-end 2024.
Operational and Regulatory Challenges
The Consent Order issued by the OCC in January 2024 has been a significant challenge for Blue Ridge, requiring the company to devote substantial resources to enhancing its policies, procedures, and practices, particularly in the areas of BSA/AML compliance and third-party risk management. The Consent Order also places additional restrictions on the bank's operations, including the requirement to obtain non-objection from the OCC prior to onboarding or signing a contract with a new third-party fintech relationship or offering new products or services.
While Blue Ridge has made progress in addressing the issues identified in the Consent Order, the company may continue to face heightened regulatory scrutiny and potential further actions by the OCC if it fails to fully comply with the terms of the order. Additionally, the wind-down of the company's fintech BaaS deposit operations has led to a decline in noninterest income and deposits, which could continue to negatively impact its financial performance in the near term.
On December 20, 2024, a former Deputy BSA Officer and manager at the Bank filed a lawsuit alleging retaliation and wrongful discharge. The Company believes the claims are without merit and is defending the matter. Additionally, on December 5, 2023, a shareholder commenced a securities class action lawsuit alleging material misstatements and omissions. The parties agreed to a $2.5 million settlement in principle in December 2024, which is subject to court approval.
Business Segments
Blue Ridge Bankshares operates through two primary business segments: Commercial Banking and Mortgage Banking.
The Commercial Banking segment is the company's core business, generating the majority of its revenue and net income. This segment provides a wide array of commercial and consumer banking and financial services through Blue Ridge Bank, National Association. The Bank's commercial lending activities include business loans, asset-based loans, and other secured and unsecured loans and lines of credit to commercial entities. The Bank also offers commercial real estate loans, including loans on owner-occupied and non-owner-occupied commercial properties such as office buildings, retail facilities, multifamily properties, and industrial/warehouse properties. Additionally, the Commercial Banking segment provides Small Business Administration (SBA) loans, which offer more flexible terms compared to conventional commercial loans.
For the year ended December 31, 2024, the Commercial Banking segment reported net interest income of $80.3 million and a net loss of $4.7 million. The segment's net interest margin was 2.98% for the year. Total assets for the Commercial Banking segment were $2.70 billion as of December 31, 2024, with gross loans of $2.08 billion and total deposits of $2.14 billion. The allowance for credit losses stood at $23.0 million, or 1.09% of total loans, as of the end of 2024. Asset quality metrics remained elevated, with nonperforming loans at 1.20% of total loans and the ratio of nonperforming assets to total assets at 0.94%.
The Mortgage Banking segment focuses on residential mortgage origination and sales activities, operating under the Monarch Mortgage brand. This segment originates and sells mortgage loans, primarily to the secondary market, and earns fee income on mortgage banking activities. The Company participates in both mandatory delivery and best efforts delivery programs for the sale of its mortgage loans.
For the year ended December 31, 2024, the Mortgage Banking segment reported net interest income of $797,000 and a net loss of $1.3 million. The segment generated $10.4 million in residential mortgage banking income, but also incurred a $3.6 million loss on the sale of mortgage servicing rights. Total assets for the Mortgage Banking segment were $27.8 million as of December 31, 2024, with loans held for sale of $31.0 million.
In the second half of 2024, the Company sold substantially all of its mortgage servicing rights portfolio, consisting of $1.94 billion in unpaid principal balances of underlying mortgages, at a loss of $3.6 million. As of December 31, 2024, the Company's remaining mortgage servicing rights portfolio had a fair value of $386,000, down significantly from $27.1 million a year earlier.
Outlook and Conclusion
Blue Ridge Bankshares is navigating a challenging regulatory environment as it works to transform itself into a more traditional, community-focused bank. The company's recent $161.6 million capital raise is expected to provide the resources needed to support its strategic initiatives, including the repositioning of its business lines, enhancing its capital levels, and further strengthening its compliance and risk management functions.
While the company's near-term financial performance may continue to be impacted by the costs of regulatory remediation and the wind-down of its fintech operations, Blue Ridge's long-term success will depend on its ability to effectively implement its transformation plan, maintain strong compliance and risk management practices, and capitalize on opportunities within its core geographic markets. The financial services industry remains highly competitive, with Blue Ridge facing competition from banks, credit unions, fintech companies, and other lenders in its primary markets of Virginia and North Carolina.
Investors will likely continue to closely monitor the company's progress in addressing the Consent Order requirements and its ability to return to profitability and sustainable growth. The ongoing legal challenges, including the securities class action settlement and the recent lawsuit filed by a former employee, add additional complexity to the company's operational and financial outlook. As Blue Ridge Bankshares continues its transformation efforts, the focus will be on improving asset quality, strengthening its core banking operations, and rebuilding investor confidence in the wake of recent regulatory and legal challenges.