Blue Ridge Bankshares, Inc. Announces Third Quarter and Year-to-date 2021 Results

CHARLOTTESVILLE, Va., Nov. 4, 2021 /PRNewswire/ -- Blue Ridge Bankshares, Inc. (the "Company") (NYSE American: BRBS), the holding company of Blue Ridge Bank, National Association ("Blue Ridge Bank") and BRB Financial Group, Inc., announced today financial results for the quarter and year-to-date periods ended September 30, 2021.  For the third quarter of 2021, the Company reported net income of $6.8 million, or $0.36 earnings per diluted common share, compared to $28.6 million, or $1.54 earnings per diluted common share, for the second quarter of 2021, and $5.1 million, or $0.59 earnings per diluted common share, for the third quarter of 2020.  For the nine months ended September 30, 2021, the Company reported net income of $39.7 million, or $2.26 earnings per diluted common share, compared to $12.1 million, or $1.42 earnings per diluted common share, for the same period of 2020.  Earnings per diluted common share for all periods presented is reflective of the 3-for-2 stock split effective April 30, 2021.  Net income for the nine months ended September 30, 2021 included an after-tax gain of $19.2 million resulting from the sale in second quarter of 2021 of over $700 million of loans originated under the Paycheck Protection Program ("PPP").  Net income for all periods presented also reflected merger-related expenses, as further discussed below. 

On January 31, 2021, the Company completed the merger of Bay Banks of Virginia, Inc. ("Bay Banks"), the holding company of Virginia Commonwealth Bank, into the Company.  Immediately following the completion of the merger, Virginia Commonwealth Bank was merged into Blue Ridge Bank (collectively, the "Bay Banks Merger").  Earnings for the first nine months of 2021 include the earnings of Bay Banks from the effective date of the merger. 

On July 14, 2021, the Company and FVCBankcorp, Inc. ("FVCB") jointly announced they had entered into a definitive agreement pursuant to which the companies will combine in an all-stock merger of equals (the "FVCB Merger").  The FVCB Merger is subject to customary closing conditions, including regulatory approvals and approval from the shareholders of both companies.  The Company has learned that the Office of the Comptroller of the Currency (the "OCC") identified certain regulatory concerns with Blue Ridge Bank that could impact the application process and timing of the FVCB Merger.  Blue Ridge Bank has already commenced an initiative intended to fully address the OCC's concerns.  The Company anticipates the FVCB Merger will close in the second or third quarter of 2022.

Net income for the third and second quarters of 2021 included approximately $1.1 million and $1.0 million, respectively, in after-tax expenses related to the Bay Banks Merger and the FVCB Merger, while earnings for the third quarter of 2020 included approximately $1.0 million in after-tax merger-related expenses.

"Our team had a productive third quarter," said Brian K. Plum, President and Chief Executive Officer.  "Loan pipelines are at historically high levels and our expectation is that will convert to higher loan balances.  The consolidation of five branch locations at quarter-end and growth in our fintech division's balances illustrate continued progress in improving our delivery channels to enhance our future customer experience."

"Mortgage volumes remain at elevated levels, though margin compression, particularly in wholesale mortgage, has negatively impacted mortgage division profitability," added Plum. 

Paycheck Protection Program

During 2021, the Company funded over 20,000 PPP loans with principal balances of approximately $730 million pursuant to the Economic Aid Act, passed at the end of December 2020 ("PPP2 loans").  Of the PPP2 loans, approximately 19,500 with principal balances of $712.6 million were sold on June 28, 2021.  Gross proceeds from the sale were $705.9 million, and the Company recorded a pre-tax gain of $24.3 million on the sale after giving effect to $30.9 million of unearned fees, net of deferred costs, and the sale discount.  As of September 30, 2021, the Company held $14.7 million of PPP2 loans, and unearned fees, net of deferred costs, totaled $676 thousand.  PPP2 loans, if not forgiven, have a five-year term and a stated interest rate of 1%.  As of September 30, 2021, the Company held $32.6 million of PPP loans funded in 2020, pursuant to the Coronavirus Aid, Relief, and Economic Security Act ("PPP1 loans").  PPP1 loans, if not forgiven, have a one- or five-year term, depending on origination date, and a stated interest rate of 1%.

Processing fees, net of costs, and interest income earned by the Company for PPP loans in the amounts of $712 thousand and $11.7 million were recognized as interest income in the third and second quarters of 2021, respectively, and the amount for the nine months ended September 30, 2021 was $16.9 million.  Net processing fees for PPP loans are being recognized over the expected life of these loans, which is one to three years depending on the original loan balance.

The Company's PPP loans are primarily funded using the Federal Reserve Bank's Paycheck Protection Program Liquidity Facility ("PPPLF").  As of September 30, 2021, outstanding advances under the PPPLF were $33.9 million.  The PPPLF provided funding for the full amount and term of the PPP loans at a fixed annual cost of 0.35%.  PPP loans do not count toward bank regulatory capital ratios. 

Fintech Business

The Company continues to grow its partnerships with fintech providers and ended the third quarter of 2021 with active partnerships, including Unit, Flexible Finance, Increase, Upgrade, Kashable, Jaris, Aeldra, Grow Credit, MentorWorks, and Marlette.  Loans and deposits related to fintech relationships were approximately $40.7 million and $76.6 million, respectively, as of September 30, 2021, compared to $10.3 million and $35.3 million, respectively, as of December 31, 2020.

Mortgage Division

The Company's mortgage division, which consists of a retail division operating as Monarch Mortgage and a wholesale division operating as LenderSelect Mortgage Group, recorded net income of $1.5 million for the third quarter of 2021 compared to $764 thousand for the second quarter of 2021.  Mortgage volumes for the third and the second quarters of 2021 were $325.9 million and $337.5 million, respectively.  Noninterest expenses recorded for the Company's mortgage division were $8.0 million and $8.9 million for the third and second quarters of 2021, respectively.

Balance Sheet

The Company reported total assets of $2.70 billion at September 30, 2021, an increase of $1.20 billion from $1.50 billion at December 31, 2020.  The increase in total assets was primarily due to the Bay Banks Merger, which increased assets by $1.22 billion at the effective date of the merger.  Loans held for investment, excluding PPP loans, increased $1.02 billion to $1.75 billion at September 30, 2021 from $732.9 million at December 31, 2020.  Loan growth in the third quarter of 2021 totaled $22.8 million.

Total deposits at September 30, 2021 were $2.20 billion, an increase of $1.26 billion from December 31, 2020, of which $1.03 billion were assumed in the Bay Banks Merger at the effective date of the merger.  The Company's expanding relationships with fintech partners have resulted in $41.3 million of deposit growth in the nine months ended September 30, 2021.

As previously noted, the majority of PPP loans were funded through the PPPLF, resulting in a decrease in Federal Reserve Bank of Richmond ("FRB") advances upon the sale of PPP2 loans in the second quarter of 2021.  Additionally, the Company redeemed its outstanding subordinated notes with initial aggregate principal balances of $10.0 million and $7.0 million in the second and third quarters of 2021, respectively. The Company assumed $31.9 million of subordinated debt in the Bay Banks Merger.

Income Statement

Net Interest Income

Net interest income was $21.1 million for the third quarter of 2021 compared to $30.5 million for the second quarter of 2021 and $11.8 million for the third quarter of 2020.  Included in interest income for the third quarter of 2021 were approximately $712 thousand in PPP fees, net of costs, and interest income, whereas in the second quarter of 2021, PPP fees, net of costs, and interest income were $11.7 million, a decrease of $11.0 million.  The decrease in net interest income on a sequential quarter basis was primarily attributable to the previously noted PPP2 loan sale on June 28, 2021.  Funding costs for PPP loans under the PPPLF were approximately $59 thousand and $382 thousand of interest expense for the third and second quarters of 2021, respectively.  Partially offsetting the decline in net interest income from PPP loans was greater interest income from fintech loans and higher balances of investments and lower borrowing costs.  Accretion of acquired loan discounts included in interest income in the third and second quarters of 2021 were $112 thousand and $886 thousand, respectively, while amortization of purchase accounting adjustments on assumed time deposits and borrowings were $886 thousand and $1.0 million in the same respective periods.

Net interest margin for the third quarter of 2021 was 3.32% compared to 3.82% for the second quarter of 2021 and 3.26% for the third quarter of 2020.  PPP loans, including the corresponding funding, had a 1, 56, and 23 basis point positive effect on the Company's net interest margin for the third quarter of 2021, second quarter of 2021, and third quarter of 2020, respectively.  Additionally, accretion and amortization of purchase accounting adjustments related to the Bay Banks Merger had a 16 and 22 basis point positive effect on net interest margin for the third and second quarters of 2021, respectively.  Excluding the impact of PPP and purchase accounting adjustments, the Company continues to experience a decline in net interest margin due to the replacement of higher priced loans and greater liquidity invested in lower yielding securities, partially offset by the re-pricing of higher priced term deposits and the reduction in subordinated notes.  Cost of deposits were 0.29% for the third and second quarters of 2021 and 0.64% for the third quarter of 2020.

Provision for Loan Losses

The Company recorded no provision for loan losses for the quarter and year-to-date periods ended September 30, 2021 compared to provision expense of $4.0 million and $8.1 million for the same respective periods of 2020.  In 2020, the Company increased its allowance for loan losses through the application of a qualitative factor in response to potential credit losses as a result of the COVID-19 pandemic.  The decline in the Company's allowance for loan losses in the nine months ended September 30, 2021 was due to the release of the COVID-19 factor, partially offset by organic loan growth, reserves for fintech related loans, and reserve needs for loans that have migrated from the Company's acquired loan pools.

Noninterest Income

Noninterest income for the third quarter of 2021 was $13.5 million compared to $36.4 million and $17.6 million for the second quarter of 2021 and the third quarter of 2020, respectively.  Noninterest income for the second quarter of 2021 included a net gain of $24.3 million realized on the sale of PPP loans.  Mortgage banking income, including mortgage servicing rights, contributed $9.5 million of noninterest income in the third quarter of 2021 compared to $9.0 million in the second quarter of 2021 and $16.0 million in the third quarter of 2020.  Other income in the third and second quarters of 2021 included $1.0 million and $640 thousand of fair value adjustments, respectively, for the Company's investments in certain fintech companies.  Noninterest income for the nine months ended September 30, 2021 and 2020 was $65.8 million and $38.8 million, respectively.  Excluding the gain on sale of PPP loans, noninterest income for the nine months ended September 30, 2021 was $41.4 million, a $2.6 million increase over the same period of 2020.

Noninterest Expense

Noninterest expense for the third and second quarters of 2021 was $25.6 million and $30.5 million, respectively, compared to $18.7 million for the third quarter of 2020.  Noninterest expenses added with the Bay Banks Merger are included since the effective date of the merger.  Merger-related expenses for the third and second quarters of 2021 and the third quarter of 2020 were $1.4 million, $1.2 million, and $1.3 million, respectively.  Salaries and employee benefit expenses decreased $2.9 million in the third quarter of 2021 from the second quarter of 2021, primarily due to greater incentive expenses recorded in the second quarter.  Also contributing to lower noninterest expenses in the third quarter of 2021 compared to the second quarter of 2021 were lower expenses in the Company's mortgage division.  Noninterest expense for the nine months ended September 30, 2021 and 2020 was $86.7 million and $45.5 million, respectively.  Included in these amounts were merger-related expenses of $11.7 million and $1.7 million for the same respective periods.

Asset Quality

Nonperforming loans, which include nonaccrual loans and loans 90 days or more past due and accruing interest¹, totaled $15.2 million at September 30, 2021, an increase of $8.6 million from December 31, 2020.  The ratio of nonperforming loans to total assets was 0.56% as of September 30, 2021 and 0.44% as of December 31, 2020.  The Company's allowance for loan losses was $12.6 million at September 30, 2021, or 0.72% as a percentage of gross loans held for investment, excluding PPP loans, compared to 1.89% at December 31, 2020.  The Company holds no allowance for loan losses on PPP loans as they are fully guaranteed by the U.S. government.  The decrease in the allowance for loan losses as a percentage of gross loans held for investment since December 31, 2020 was primarily attributable to the loans acquired in the Bay Banks Merger, for which no allowance for loan losses carried over in the merger.  Remaining acquired loan discounts related to loans acquired in the Company's mergers were $17.0 million as of September 30, 2021 compared to $1.2 million as of December 31, 2020. 

¹ Excluding purchased credit-impaired loans.

Capital

The Company previously announced that on September 15, 2021, its board of directors declared a $0.12 per common share quarterly dividend, payable October 29, 2021 to shareholders of record as of October 21, 2021.  Tangible book value per share, a non-GAAP (defined below) measure, was $12.69 and $10.03 as of September 30, 2021 and December 31, 2020, respectively.

Non-GAAP Financial Measures

The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles ("GAAP") and prevailing practices in the banking industry.  However, management uses certain non-GAAP measures to supplement the evaluation of the Company's performance.  Management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Company's core businesses.  These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.  Reconciliations of GAAP to non-GAAP measures are included at the end of this release.

Forward-Looking Statements

This release of the Company contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of the Company's beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as "may," "could," "should," "will," "would," "believe," "anticipate," "estimate," "expect," "aim," "intend," "plan," or words or phases of similar meaning.  The Company cautions that the forward-looking statements are based largely on its expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond the Company's control. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements.

The following factors, among others, could cause the Company's financial performance to differ materially from that expressed in such forward-looking statements: (i) the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; (ii) geopolitical conditions, including acts or threats of terrorism, or actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad; (iii) the effects of the COVID-19 pandemic, including the adverse impact on the Company's business and operations and on the Company's customers which may result, among other things, in increased delinquencies, defaults, foreclosures and losses on loans; (iv) the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and other catastrophic events; (v) the Company's management of risks inherent in its real estate loan portfolio, and the risk of a prolonged downturn in the real estate market, which could impair the value of the Company's collateral and its ability to sell collateral upon any foreclosure; (vi) changes in consumer spending and savings habits; (vii) technological and social media changes; (viii) the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rate, market and monetary fluctuations; (ix) changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally, or the Company's subsidiary bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products; (x) the impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, securities and insurance, and the application thereof by regulatory bodies; (xi) the impact of changes in laws, regulations and policies affecting the real estate industry; (xii) the effect of changes in accounting policies and practices, as may be adopted from time to time by bank regulatory agencies, the Securities and Exchange Commission (the "SEC"), the Public Company Accounting Oversight Board, the Financial Accounting Standards Board or other accounting standards setting bodies; (xiii) the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers; (xiv) the willingness of users to substitute competitors' products and services for the Company's products and services; (xv) expenses related to the FVCB Merger, unexpected delays related to the FVCB Merger, or the inability to obtain regulatory and shareholder approvals or satisfy other closing conditions required to complete the FVCB Merger within the expected time frame, or at all; (xvi) the businesses of the Company and FVCB may not be integrated successfully or such integration may be more difficult, time-consuming, or costly than expected; (xvii) customer and employee relationships and business operations may be disrupted by the Bay Banks Merger or the FVCB Merger; (xviii) the effects of the Bay Banks Merger, the FVCB Merger and other acquisitions the Company may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such transactions; (xix) changes in the level of the Company's nonperforming assets and charge-offs; (xx) the Company's involvement, from time to time, in legal proceedings and examination and remedial actions by regulators; (xxi) potential exposure to fraud, negligence, computer theft and cyber-crime; (xxii) the Company's ability to pay dividends; (xxiii) the Company's involvement as a participating lender in the PPP as administered through the Small Business Administration; and (xxiv) other risks and factors identified in the "Risk Factors" sections and elsewhere in documents the Company files from time to time with the SEC.