Blue Ridge Bankshares(BRBS) - 2020 Q4 - Annual Report

PART I Item 1: Business Blue Ridge Bankshares, Inc. is a bank holding company providing commercial and consumer banking and financial services through its subsidiary, Blue Ridge Bank, N.A., and non-bank affiliates - Blue Ridge Bankshares, Inc. is a bank holding company headquartered in Charlottesville, Virginia, operating through its wholly-owned subsidiary, Blue Ridge Bank, National Association, and non-bank financial services affiliates[9] - The Bank expanded its operations by acquiring Bay Banks of Virginia, Inc. on January 31, 2021, adding seventeen banking offices and extending its reach to the greater Richmond, Northern Neck, Middlesex County, and Hampton Roads regions of Virginia[10][16] - | Metric | Amount (as of Dec 31, 2020) | | :--------------------- | :-------------------------- | | Total Assets | $1.50 billion | | Total Gross Loans | $1.17 billion | | Total Deposits | $945.1 million | | Stockholders' Equity | $108.2 million | - The Bank's primary revenue sources are interest income from lending, interest and dividend income from investments, interest income from deposit balances, mortgage banking income, transaction and fee income, and payroll processing services[13] - The Company's fintech partnerships, including Upgrade, Meritize, Flexible Finance, and Kashable, resulted in approximately $47.0 million in deposits by December 31, 2020[14] - The Company is regulated by the Federal Reserve and the Virginia SCC, while the Bank's primary regulator is the OCC[15] General Blue Ridge Bankshares, Inc. is a Virginia-incorporated bank holding company operating through its subsidiary, Blue Ridge Bank, N.A., and non-bank affiliates, offering a wide range of financial services and expanding through acquisitions and fintech partnerships - The Company was incorporated in July 1988 and is headquartered in Charlottesville, Virginia, providing commercial and consumer banking services through Blue Ridge Bank, N.A[9] - The Bank's acquisition of Bay Banks of Virginia, Inc. on January 31, 2021, expanded its footprint by adding seventeen banking offices in central Virginia and north-central North Carolina[10][16] - | Metric | Amount (as of Dec 31, 2020) | | :--------------------- | :-------------------------- | | Total Assets | $1.50 billion | | Total Gross Loans | $1.17 billion | | Total Deposits | $945.1 million | | Stockholders' Equity | $108.2 million | - The Bank offers diverse financial services including checking, savings, money market accounts, various loans (commercial, residential, consumer), investment services, insurance, credit cards, and online/mobile banking[12] - Fintech partnerships, which began gaining critical mass in 2020, include Upgrade, Meritize, Flexible Finance, and Kashable, contributing approximately $47.0 million in deposits[14] - Key acquisitions include LenderSelect Mortgage Group (2019), Virginia Community Bankshares, Inc. (2019), Hammond Insurance Agency (2019), MoneyWise Payroll Solutions, Inc. (2017), and River Bancorp, Inc. (2016)[19][20][21][22][23] Market Area The Company's primary market area spans central Virginia and north-central North Carolina, with mortgage operations extending to Maryland, South Carolina, and Delaware, further expanded by the Bay Banks merger into the greater Richmond and Hampton Roads regions - The Bank operates branches in central Virginia (Charlottesville, Culpeper, Fredericksburg, Harrisonburg, Luray, Martinsville, Orange, Shenandoah, Stuart, Troy, Drakes Branch, Gordonsville, Mineral) and north-central North Carolina (Greensboro)[30] - Mortgage operations extend beyond its primary banking footprint to include Virginia, Maryland, North Carolina, South Carolina, and Delaware[30] - The merger with Bay Banks expanded the Company's market to the greater Richmond area, Hampton Roads, Northern Neck, and Middle Peninsula regions of Virginia[31] Products and Services The Company offers a comprehensive suite of banking products and services, including various mortgage loans, commercial and industrial loans, consumer loans, and a range of deposit services, with specialized offerings like secondary market residential loan origination and SBA loan products - Mortgage loans on real estate constitute the largest segment of the loan portfolio, including owner-occupied residential, construction, and commercial mortgages, typically underwritten at a maximum of 80% loan-to-value[32] - The Company originates secondary market residential loans, underwritten to agency guidelines (Freddie Mac, Fannie Mae, Ginnie Mae), earning origination and servicing fees[34] - Commercial lending includes small business loans, asset-based loans, and other secured/unsecured lines of credit, managed with strict risk management standards[35] - Consumer lending services encompass automobile loans, home improvement loans, credit cards, and unsecured personal loans, which carry higher risk but also higher returns[36] - Commercial banking services include analysis checking, cash management, wire services, direct deposit payroll, online/telephone banking, remote deposit, and SBA loan products (504, 7(a), PPP)[38] Competition The financial services industry is highly competitive, with the Company competing against various bank and non-bank institutions, many of which possess greater financial resources and wider geographic presence, differentiating itself through competitive pricing, personalized service, and community involvement - The Company faces substantial competition from national, regional, and community banks, as well as finance companies, mutual funds, brokerage firms, insurance companies, credit unions, and financial technology companies[39] - Competitive factors include the scope and type of services, interest rates on deposits and loans, and customer service experience[39] - Many competitors have advantages such as greater financial resources, wider geographic presence, more accessible branch locations, additional services, more favorable pricing, and lower operating costs[39] - The Company's competitive strategy relies on competitive pricing, personalized service, and community involvement[39] Employees As of December 31, 2020, the Company had 362 full-time and 24 part-time employees, with good employee relations and no collective bargaining representation - | Employee Type | Count (as of Dec 31, 2020) | | :------------ | :------------------------- | | Full-time | 362 | | Part-time | 24 | | Total | 386 | - No employees are represented by collective bargaining units, and relations are considered good[40] Supervision and Regulation The Company and its subsidiary Bank are subject to extensive federal and state regulations from the Federal Reserve, OCC, and FDIC, covering capital standards, deposit insurance, consumer protection, anti-money laundering, privacy, and incentive compensation, with regulatory changes significantly impacting operations - The Company and Bank are extensively regulated under federal and state law, with the Federal Reserve and Virginia SCC overseeing the Company, and the OCC primarily regulating the Bank[41][43][45] - Regulatory changes, interpretations, or policies can materially impact the Company's business, operations, and earnings[41] Blue Ridge Bankshares, Inc. As a bank holding company, Blue Ridge Bankshares, Inc. is regulated by the Federal Reserve and the Virginia SCC, and has not elected to become a financial holding company - The Company is a bank holding company registered with the Federal Reserve and the Virginia SCC, subject to their supervision, regulation, and examination[43] - The Company has not elected to become a financial holding company, which would allow engagement in broader 'financial in nature' activities, and has no immediate plans to do so[44] Blue Ridge Bank, National Association Blue Ridge Bank, N.A., a federally chartered national bank, is primarily regulated by the OCC and also subject to FDIC examination, with its earnings significantly affected by general economic conditions and Federal Reserve monetary policies - The Bank is a federally chartered national bank, primarily supervised, regulated, and examined by the Office of the Comptroller of the Currency (OCC)[45] - The Bank is also subject to examination by the FDIC due to its acceptance of insured deposits[45] - The Bank's earnings are significantly affected by general economic conditions and the Federal Reserve's monetary policies, which influence interest rates and credit availability[47] The Dodd-Frank Act The Dodd-Frank Act significantly reshaped financial regulation, increasing capital standards, making the $250,000 deposit insurance limit permanent, and creating the CFPB, with subsequent amendments providing some regulatory relief for smaller institutions but still impacting compliance costs - The Dodd-Frank Act (2010) restructured financial regulation, increasing capital requirements and establishing the Consumer Financial Protection Bureau (CFPB)[48][49][52] - It made the $250,000 deposit insurance limit permanent and revised the FDIC assessment base to average consolidated total assets less average tangible equity[50] - The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (EGRRCPA) amended Dodd-Frank, providing regulatory relief for financial institutions with less than $10 billion in assets, including exemptions from certain capital and stress test requirements[54] - The Dodd-Frank Act has increased, and may continue to increase, compliance costs and affect the Company's profitability and business practices[54] Deposit Insurance The Bank's deposits are insured by the FDIC's Deposit Insurance Fund (DIF), with assessments based on assets and tangible equity, and the FDIC raised the DIF's minimum reserve ratio to 1.35% while implementing a 'financial ratios method' for smaller institutions - The Bank's deposits are insured by the FDIC's DIF, with assessments based on average total assets minus average tangible equity[55] - Effective July 1, 2016, the FDIC adopted a 'financial ratios method' using CAMELS composite ratings for small institutions (under $10 billion in assets) to determine assessment rates[55] - The FDIC raised the DIF's minimum reserve ratio from 1.15% to 1.35%, which was achieved in Q3 2018[56] - | Year | FDIC Insurance Premiums | | :--- | :---------------------- | | 2020 | $749 thousand | | 2019 | $420 thousand | Capital Requirements The Company and Bank are subject to federal capital requirements, including Basel III, with the Bank exceeding all minimum ratios and being classified as 'well capitalized' as of December 31, 2020, while the Company is exempt from Basel III at the holding company level - The Company and Bank are subject to capital requirements from federal banking agencies, including the Basel III capital framework, effective January 1, 2015[58][59] - | Capital Ratio (as of Dec 31, 2020) | Minimum Requirement (incl. buffer) | Bank's Ratio | | :--------------------------------- | :--------------------------------- | :----------- | | Common Equity Tier 1 | 7.0% | 11.84% | | Tier 1 Capital | 8.5% | 11.84% | | Total Capital | 10.5% | 13.10% | | Leverage Ratio | 4.0% | 8.34% | - As of December 31, 2020, the Bank exceeded the thresholds to be considered 'well capitalized' under prompt corrective action regulations[62][76] - The Company qualifies under the Federal Reserve's Small Bank Holding Company Policy Statement (SBHC Policy Statement) and is exempt from Basel III Capital Rules at the holding company level, but the Bank is not[65][168] - The Company has not opted into the Community Bank Leverage Ratio (CBLR) framework, which allows qualifying banks with less than $10 billion in assets to use a simplified 9% leverage ratio[66][76] Dividends The Company's ability to pay dividends to shareholders is primarily dependent on dividends received from the Bank, which are subject to statutory and regulatory limitations, including restrictions based on net income and the OCC's authority to prevent unsafe payments - The Company's main source of cash flow for shareholder dividends is dividends received from the Bank[67] - Statutory and regulatory limitations restrict the Bank's dividend payments; generally, they cannot exceed the sum of current year-to-date net income and the preceding two years' retained net earnings without prior regulatory approval[67] - The OCC can prevent dividend payments if they are deemed an unsafe and unsound banking practice or would cause the institution to become 'undercapitalized'[68] Permitted Activities As a bank holding company, the Company's activities are limited to managing or controlling banks, providing services to subsidiaries, and engaging in activities closely related to banking as approved by the Federal Reserve, which evaluates public benefits versus potential adverse effects and can order termination of risky activities - As a bank holding company, the Company is restricted to managing banks, providing services to subsidiaries, and engaging in activities closely related to banking as approved by the Federal Reserve[69] - The Federal Reserve assesses whether an activity's public benefits (convenience, competition, efficiency) outweigh potential adverse effects (resource concentration, unfair competition, conflicts of interest, unsound practices)[69] - The Federal Reserve can order a bank holding company to cease any activity or divest a subsidiary if it poses a serious risk to the financial safety, soundness, or stability of any bank subsidiary[69] Banking Acquisitions; Changes in Control Acquisitions of banks or bank holding companies, or changes in control, require prior approval from the Federal Reserve under the BHC Act and the Change in Bank Control Act, considering factors like competition, public benefits, capital ratios, and CRA performance, with Virginia law also mandating prior SCC approval for certain acquisitions - The BHC Act requires prior Federal Reserve approval for bank holding companies to acquire more than 5% of voting stock, substantially all assets, or merge with another bank holding company[70] - Approval factors include competitive effects, public benefits, projected post-acquisition capital ratios, and compliance with CRA and consumer protection laws[70] - Acquiring 'control' (25% or more voting securities, or 10% with certain conditions) of a bank or bank holding company also requires Federal Reserve approval or non-disapproval[71] - Virginia law additionally requires prior Virginia SCC approval for acquiring over 5% of a Virginia bank's voting shares or a Virginia bank holding company acquiring an out-of-state bank[72] Source of Strength Federal Reserve policy, codified by the Dodd-Frank Act, mandates that bank holding companies act as a 'source of financial and managerial strength' for their subsidiary banks, requiring the Company to support the Bank with resources even if its own financial position is constrained, with capital loans to subsidiaries being subordinate to depositors - Federal Reserve policy, now codified by the Dodd-Frank Act, requires bank holding companies to serve as a 'source of financial and managerial strength' to their subsidiary banks[73] - The Company is expected to commit resources to support the Bank, even when its own financial position may be constrained[73] - Capital loans from a bank holding company to its subsidiary banks are subordinate to depositors and certain other bank indebtedness[73] The Federal Deposit Insurance Corporation Improvement Act FDICIA grants federal bank regulatory agencies broad powers for 'prompt corrective action' based on an institution's capital levels, with the Bank classified as 'well capitalized' as of December 31, 2020, meeting all revised capital measures under Basel III, while the CBLR framework offers simplified requirements for qualifying banks - FDICIA empowers federal bank regulatory agencies to take 'prompt corrective action' based on an insured depository institution's capital category[75] - Capital categories (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, critically undercapitalized) are determined by total capital, common equity Tier 1, Tier 1, and leverage ratios, revised effective January 1, 2015, under Basel III[75] - As of December 31, 2020, the Company's Bank met the requirements to be classified as 'well capitalized'[76] - The Community Bank Leverage Ratio (CBLR) framework, introduced by EGRRCPA, allows qualifying banks with less than $10 billion in assets to be deemed 'well capitalized' if they maintain a CBLR greater than 9% (temporarily lowered to 8% due to COVID-19). The Company has not opted into this framework[76] Transactions with Affiliates Sections 23A and 23B of the Federal Reserve Act and Regulation W limit the Bank's transactions with affiliates, requiring collateralization for loan transactions and mandating fair terms, while Sections 22(g) and 22(h) restrict loans to insiders, requiring fair terms and board approval for certain credit extensions - The Bank's transactions with affiliates are restricted by Sections 23A and 23B of the Federal Reserve Act and Regulation W[78] - Loan transactions with affiliates must generally be collateralized, and other transactions must be on terms at least as favorable to the Bank as comparable nonaffiliated transactions[78] - Loans to executive officers, directors, or 10%+ shareholders are subject to Sections 22(g) and 22(h) of the Federal Reserve Act, requiring fair terms and, for certain extensions, prior approval by a disinterested majority of the board[79][81] Consumer Financial Protection The Company is subject to numerous federal and state consumer protection laws, including those enforced by the CFPB, which has broad rulemaking and enforcement authority over consumer financial products and services, with non-compliance potentially leading to penalties, business restrictions, and reputational damage - The Company is subject to extensive federal and state consumer protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, and Fair Housing Act[82] - The Consumer Financial Protection Bureau (CFPB), created by the Dodd-Frank Act, has broad authority to establish rules, examine, and enforce federal consumer protection laws, including prohibiting 'unfair, deceptive or abusive' acts[83] - Failure to comply with these laws can result in penalties, restrictions on business activities, and adverse impacts on merger/acquisition approvals[82][83] Community Reinvestment Act The CRA requires federal banking agencies to assess a bank's record in meeting the credit needs of its communities, particularly low and moderate-income neighborhoods, with the Bank receiving a 'satisfactory' rating in its most recent evaluation, and recent OCC rule changes clarifying qualifying activities and introducing deposit-based assessment areas - The Community Reinvestment Act (CRA) requires federal banking agencies to assess a bank's performance in meeting the credit needs of its communities, including low and moderate-income areas[84] - The Bank received a 'satisfactory' rating in its most recent CRA evaluation[84] - New OCC rules, effective October 1, 2020, clarify CRA credit activities and introduce additional assessment areas based on domestic retail product receipts[85] Anti-Money Laundering Legislation The Company is subject to various federal Anti-Money Laundering (AML) laws, including the Bank Secrecy Act and the USA PATRIOT Act, which mandate policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing, with compliance being crucial for bank acquisition and merger applications - The Company is subject to federal AML laws (e.g., Bank Secrecy Act, USA PATRIOT Act, Anti-Money Laundering Act of 2020) to combat money laundering and terrorist financing[86] - These laws require policies, procedures, and controls for detection, prevention, and reporting, and federal regulators consider AML effectiveness in acquisition and merger applications[88] Office of Foreign Assets Control The Company must comply with OFAC regulations, which administer and enforce economic and trade sanctions against specified foreign parties, requiring the blocking of accounts and transactions with prohibited parties and reporting such activities, as non-compliance can lead to severe legal, financial, and reputational consequences - The Company must comply with the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) regulations, which enforce economic and trade sanctions[89] - Compliance requires blocking accounts and transactions with prohibited parties and reporting blocked transactions[89] - Failure to comply with OFAC requirements can result in serious legal, financial, and reputational consequences[89] Privacy Legislation The Company is subject to privacy laws, such as the Right to Financial Privacy Act and GLB Act, which regulate the transfer and use of customer information, requiring disclosure of privacy policies, internal risk assessments, and generally prohibiting sharing PII without customer consent, as non-compliance can lead to litigation, regulatory sanctions, and reputational damage - The Company is subject to privacy laws (e.g., Right to Financial Privacy Act, GLB Act) that govern the collection, transfer, and use of customer personal information[90][177] - These laws require providing customers with privacy policies, conducting internal risk assessments, and generally obtaining consent before sharing personally identifiable information (PII) with nonaffiliated third parties[90][177][179] - Failure to comply or perceived inadequacy of PII safeguards can lead to litigation, regulatory sanctions, loss of customers, and reputational harm[179] Incentive Compensation Federal bank regulatory agencies have issued guidance on incentive compensation policies to prevent excessive risk-taking, with the Dodd-Frank Act requiring joint regulations to prohibit excessive compensation, and the Federal Reserve reviewing incentive compensation as part of examinations, though the Company was not aware of any non-compliance as of December 31, 2020 - Federal bank regulatory agencies issued Interagency Guidance on Sound Incentive Compensation Policies to prevent excessive risk-taking[91] - Section 956 of the Dodd-Frank Act requires joint regulations to prohibit incentive-based payment arrangements that encourage inappropriate risk-taking or provide excessive compensation[92] - The Federal Reserve reviews incentive compensation arrangements during examinations, and deficiencies can affect supervisory ratings and lead to enforcement actions[93] - As of December 31, 2020, the Company was not aware of any non-compliance with the guidance[93] Ability-to-Repay and Qualified Mortgage Rule The CFPB's Ability-to-Repay (ATR) and Qualified Mortgage (QM) Rule, effective January 10, 2014, requires mortgage lenders to assess a consumer's ability to repay a loan based on eight underwriting factors or originate 'qualified mortgages,' which offer a presumption or safe harbor of compliance, and the Company primarily originates compliant qualified mortgages - The CFPB's rule, effective January 10, 2014, requires mortgage lenders to determine a consumer's reasonable ability to repay a loan based on eight underwriting factors[95] - Alternatively, lenders can originate 'qualified mortgages' (without negative amortization, interest-only, balloon payments, or terms over 30 years, and with points/fees under 3%), which are presumed compliant or offer a safe harbor[95] - The Company predominantly originates compliant qualified mortgages[95] Cybersecurity Federal regulators emphasize robust cybersecurity controls and business continuity planning for financial institutions, as the Company faces constant threats from evolving cyber-attacks and increasing digital banking use, necessitating significant resources for protective measures, with non-compliance potentially leading to sanctions and financial penalties - Federal regulators require financial institutions to implement multiple layers of security controls and robust business continuity plans to address cyber threats and destructive malware[96] - Proposed rulemaking would require banking organizations to notify their primary regulator within 36 hours of becoming aware of a 'computer-security incident' or 'notification incident'[97] - The Company's systems are under constant threat due to the evolving nature of cyber-attacks and expanding use of internet/mobile banking, necessitating significant resources for protective measures[98] - Non-compliance with regulatory guidance could result in sanctions, including financial penalties[96] Coronavirus Aid, Relief, and Economic Security Act and Consolidated Appropriations Act, 2021 The CARES Act and Consolidated Appropriations Act, 2021, provided significant relief and programs in response to COVID-19, including temporarily lowering the CBLR threshold for community banks, extending relief for Troubled Debt Restructurings (TDRs), and establishing the Paycheck Protection Program (PPP) in which the Bank participated - The CARES Act and Consolidated Appropriations Act, 2021, introduced measures impacting financial institutions in response to the COVID-19 pandemic[99] - Interim final rules temporarily lowered the Community Bank Leverage Ratio (CBLR) threshold from 9% to 8% for qualifying banks, with a grace period for compliance, and established a transition back to 9% by 2022[100] - Temporary relief for Troubled Debt Restructurings (TDRs) allowed banks to suspend GAAP requirements for COVID-19 related loan modifications until January 1, 2022[102] - The Paycheck Protection Program (PPP) provided government-guaranteed small business loans through participating financial institutions like the Bank[102] Future Legislation and Regulation Future legislative and regulatory changes, or shifts in their interpretation, are unpredictable but could significantly impact the Company's operations, potentially increasing costs, reducing efficiency, requiring higher regulatory capital, or limiting business opportunities Item 1A: Risk Factors Investing in the Company's common stock involves significant risks, including adverse impacts from market conditions, credit risks, challenges in mergers and acquisitions, interest rate sensitivity, liquidity and capital constraints, and various regulatory and operational risks - Investment in the Company's common stock involves risks that could materially and adversely affect its business, financial condition, liquidity, results of operations, capital position, and prospects[104] - Key risk categories include market conditions, credit risk, mergers and acquisitions, interest rate risk, liquidity and capital, and regulatory and operational challenges[104] Market Conditions The Company's business is highly sensitive to market conditions, particularly the COVID-19 pandemic, interest rate fluctuations, and intense competition, with the mortgage banking segment being cyclical and the common stock thinly traded, leading to potential liquidity issues and price volatility - The COVID-19 pandemic has adversely affected the Company's business, financial condition, and operations through increased loan losses, collateral value declines, reduced net interest margin, operational disruptions, decreased demand, and heightened fraud risks[105][106][108] - Changes in economic conditions, particularly in the Company's market areas, can lead to increased loan delinquencies, problem assets, foreclosures, and decreased demand for services[110] - Market risk, including fluctuations in interest rates, equity prices, and credit quality, can adversely affect the value of assets and liabilities, especially the investment securities portfolio[111] - Mortgage banking revenue, which constituted 78.2% of total noninterest income in 2020, is cyclical and highly sensitive to interest rate levels and housing market conditions[113][114] - The Company faces strong competition from various financial institutions, including fintech companies, which could result in reduced business and hinder growth[116][117][118] - Consumer disintermediation, where customers bypass traditional banks for financial transactions, could lead to loss of fee income and customer deposits[119][120] - The Company's common stock is thinly traded, potentially limiting shareholders' ability to sell shares and increasing price volatility[122][123][124] Credit Risk The Company is exposed to significant credit risk from its lending activities, managed through underwriting standards, but the allowance for loan losses may be insufficient, especially given economic uncertainties like COVID-19, with concentrations in small to mid-sized businesses and real estate loans heightening risk, and reliance on client-provided information introducing further uncertainty - The Company assumes credit risk from loans and commitments, managed through underwriting standards, credit decision reviews, and continuous quality assessment[125][126] - The allowance for loan losses, a subjective estimate, may be insufficient to cover future losses, particularly with economic uncertainties like the COVID-19 pandemic, potentially requiring additional provisions[127][128][129] - Non-performing assets (non-accrual loans, OREO) totaled $6.6 million (0.44% of total assets) as of December 31, 2020, adversely affecting net income and requiring significant management time for resolution[131][132] - Lending focus on small to mid-sized community-based businesses increases credit risk due to their heightened vulnerability to economic conditions[133] - | Loan Type (as of Dec 31, 2020) | Company Loan Portfolio | Bay Banks Loan Portfolio | | :----------------------------- | :--------------------- | :----------------------- | | Secured by Real Estate | 63.4% | 77.2% | | Construction and Land Dev. | 6.2% | 12.9% | - Concentration in commercial real estate loans ($273.5 million for Company, $369.6 million for Bay Banks as of Dec 31, 2020) carries higher default risk and regulatory scrutiny[136][137][139] - Reliance on unverified client information and independent appraisals for collateral valuation poses a risk if the information or estimated values are misleading or unrealizable[143][144][145][147] - The Company is exposed to environmental liabilities if it takes title to real estate through foreclosure[148] Mergers and Acquisitions The successful integration of acquired entities is crucial for realizing anticipated benefits and cost savings, but integration challenges, including loss of key employees, business disruptions, and operational inconsistencies, could adversely affect financial results, and the Company's long-term growth strategy relies on successfully identifying and integrating new branches or acquisitions, which may incur increased expenses and face competition or regulatory restrictions - Combining the Company and Bay Banks may be more difficult, costly, or time-consuming than expected, potentially hindering the realization of anticipated benefits and cost savings[149] - Integration challenges could lead to loss of key employees, disruption of ongoing business, and inconsistencies in standards, adversely affecting customer relationships and financial results[150][151] - The Company's long-term growth strategy depends on its ability to successfully identify and integrate new branches or acquire other financial institutions[152][153] - Expansion into new markets or product lines may lead to unexpected challenges, and acquisitions face competition and regulatory approvals[156][157] Interest Rate Risk The Company's profitability is significantly exposed to interest rate risk, as changes in market rates directly impact its net interest income, with a faster increase in interest rates paid on liabilities compared to rates earned on assets, or a quicker fall in asset rates, potentially adversely affecting earnings, and Federal Reserve rate reductions in 2020 have already impacted financial results - The Company's business is subject to interest rate risk, where changes in market interest rates can reduce profits by affecting the differential between interest earned on assets and interest paid on liabilities[158][159] - If interest rates on deposits and borrowings increase faster than rates on loans and investments, or vice versa, net interest income and earnings could be adversely affected[159] - Federal Reserve rate reductions in March 2020 (totaling 150 basis points) in response to COVID-19 have adversely affected the Company's financial condition and results of operations[160] Liquidity and Capital The Company's liquidity depends on deposits and loan repayments, which can be unstable, potentially requiring reliance on secondary liquidity sources and risking impairment if capital markets are inaccessible, necessitating additional capital that might dilute existing shareholders, while regulatory capital standards, including Basel III, require higher capital levels that could limit operations or dividends - The Company's liquidity relies on deposits and loan repayments, which are vulnerable to economic conditions, potentially requiring reliance on secondary sources like FHLB advances or securities sales[161][163] - Inability to access capital markets or unforeseen cash outflows could impair liquidity, potentially forcing the Company to slow growth, liquidate assets, or pay higher rates on deposits[163] - The Company may need to raise additional capital in the future, which might not be available on acceptable terms, and future common stock issuances could dilute existing shareholders[164][165][166] - Regulatory capital standards, including Basel III, require higher capital and liquid asset levels, which could adversely affect profitability and return on equity, potentially limiting banking operations or dividends[167][168] - The Company's ability to pay dividends is primarily dependent on dividends from the Bank, which are subject to regulatory restrictions[170] Regulatory and Operational The Company operates in a highly regulated environment, with extensive laws and regulations governing operations, corporate governance, and financial reporting, where non-compliance, operational failures, cybersecurity threats, and pending litigation could lead to significant penalties, business restrictions, and reputational damage - The Company operates in a highly regulated industry, and non-compliance with laws and regulations can lead to restrictions, fines, and penalties, adversely affecting financial results and capital[171][172][173] - CFPB regulations, such as the Ability-to-Repay and Qualified Mortgage Rule, can increase compliance costs and limit the Company's ability to make certain types of loans, impacting profitability[174][175] - The Company is subject to laws governing privacy and information security (e.g., GLB Act), and any mishandling or misuse of customer data could result in litigation, regulatory sanctions, and reputational damage[176][177][179] - Changes in accounting standards (e.g., FASB ASUs) are difficult to predict and can materially impact reported earnings, potentially requiring retroactive restatements or increased costs[180] - Failure to maintain effective internal and disclosure controls could lead to unreliable financial reports, fraud, and harm to reputation and operating results[181][182][183] - The Company's success depends on its management team and ability to retain experienced personnel with local expertise, and the loss of key individuals could adversely affect operations and growth[184][185][187][188] - Reliance on third-party vendors for critical business infrastructure (e.g., data processing, online banking) exposes the Company to operational risks, including service disruptions and reputational harm[189] - The Company is exposed to operational risks such as reputational risk, legal/compliance risk, fraud, and errors from faulty systems or natural disasters, which could lead to financial loss or liability[191][192][194][196] - Pending litigation, such as a class action related to the VCB ESOP with alleged damages exceeding $12 million, could have a material adverse financial impact[197][212] - The potential transition from LIBOR as an interest rate index could incur significant expenses, reduce loan balances, and lead to disputes with customers[198][199] - Cybersecurity risks, including data breaches and fraudulent activity, pose a constant threat, requiring significant resources to mitigate and potentially leading to legal claims, penalties, and reputational damage[200][201][202] - Profitability is dependent on the ability to integrate and introduce new technologies into operations, and failure to do so could adversely affect business[203][204] Item 1B: Unresolved Staff Comments The Company has no unresolved staff comments to report - No unresolved staff comments are required to be reported[205] Item 2: Properties The Company, through its subsidiaries, owns or leases various buildings and office spaces for its operations, with headquarters in Charlottesville and the Bank's main office in Martinsville, both leased, and all properties are maintained in good operating condition and are considered suitable for operational needs - The Company owns or leases buildings and office space for its business operations[206] - The Company's headquarters are in Charlottesville, Virginia, and the Bank's main office is in Martinsville, Virginia, both of which are leased properties[206][208] - As of December 31, 2020, the Company and its subsidiaries owned or leased properties across various locations in Virginia and North Carolina[207][208][210] - All properties are maintained in good operating condition and are deemed suitable and adequate for operational needs[210] Item 3: Legal Proceedings The Company is a party to various legal proceedings in the ordinary course of business, including a significant class action complaint filed on August 12, 2019, against VCB (acquired by the Company) and its ESOP, alleging breach of fiduciary duties and seeking damages potentially exceeding $12 million, with the outcome uncertain and potentially having a material adverse financial impact - The Company is involved in various legal proceedings in the ordinary course of operations, with no material adverse effects expected from most[211] - A class action complaint was filed on August 12, 2019, against VCB (acquired by the Company) and its ESOP, alleging breach of fiduciary duties under ERISA, with claimed damages potentially exceeding $12 million[197][212] - The Company assumed VCB's liability in this litigation and believes the claims are without merit, but the outcome is uncertain and could have a material adverse financial impact[197][212] Item 4: Mine Safety Disclosures Mine safety disclosures are not applicable to the Company - Mine Safety Disclosures are not applicable[213] PART II Item 5: Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The Company's common stock is listed on the NYSE American under the symbol "BRBS," with 12,411,865 shares outstanding as of March 17, 2021, and the Company paid quarterly dividends in 2020, declared a $0.15 dividend for April 2021, and approved a three-for-two stock split payable on April 30, 2021 - The Company's common stock is listed on the NYSE American under the symbol "BRBS"[215] - | Metric (as of March 17, 2021) | Value | | :---------------------------- | :------------- | | Shares Outstanding | 12,411,865 | | Shareholders of Record | ~1,650 | - | Dividend Information | | :------------------- | | 2020 Quarterly Dividends: $0.1425 per common share (three payments) | | Jan 7, 2021 Declared Dividend: $0.1425 per common share (paid Jan 29, 2021) | | Mar 16, 2021 Approved Dividend: $0.15 per common share (payable Apr 30, 2021) | - A three-for-two stock split, in the form of a 50% stock dividend, was approved on March 17, 2021, payable on April 30, 2021[218] - Dividend decisions are based on operating results, financial condition, capital adequacy, regulatory requirements, and shareholder return[219] Item 6: Selected Financial Data The Company's selected financial data for 2016-2020 shows significant growth in net income, total assets, and loans, with net income attributable to Blue Ridge Bankshares, Inc. increasing from $689 thousand in 2016 to $17.7 million in 2020, and total assets growing from $418.1 million to $1.5 billion over the same period - Five-Year Summary of Selected Financial Data (2016-2020) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | 2018 ($ thousands) | 2017 ($ thousands) | 2016 ($ thousands) | | :----------------------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Income Statement Data: | | | | | | | Interest income | 54,460 | 30,888 | 22,437 | 18,481 | 13,435 | | Net interest income | 44,510 | 21,368 | 17,285 | 14,550 | 10,354 | | Provision for loan losses | 10,450 | 1,742 | 1,225 | 1,095 | 926 | | Noninterest income | 56,824 | 18,796 | 10,123 | 7,799 | 2,490 | | Noninterest expense | 68,387 | 32,845 | 20,464 | 15,847 | 10,676 | | Net income attributable to Blue Ridge Bankshares, Inc. | 17,696 | 4,580 | 4,559 | 3,350 | 689 | | Per Common Share Data: | | | | | | | Earnings per share, basic and diluted | 3.11 | 1.10 | 1.64 | 1.22 | 0.31 | | Dividends declared per share | 0.4275 | 0.5700 | 0.5400 | 0.3200 | 0.3130 | | Book value per common share | 18.92 | 16.32 | 14.11 | 13.10 | 12.29 | | Balance Sheet Data: | | | | | | | Total Assets | 1,498,258 | 960,811 | 539,590 | 424,122 | 418,124 | | Loans held for investment, gross | 991,027 | 646,834 | 414,868 | 330,805 | 319,628 | | Deposits | 945,109 | 722,030 | 415,027 | 339,290 | 340,874 | | Stockholders' equity | 108,200 | 92,337 | 39,621 | 36,442 | 33,627 | | Financial Ratios: | | | | | | | Return on average assets | 1.44% | 0.61% | 0.95% | 0.80% | 0.20% | | Return on average equity | 17.65% | 6.94% | 12.02% | 9.56% | 2.39% | | Net interest margin | 3.49% | 3.34% | 3.88% | 3.73% | 3.14% | | Efficiency ratio | 67.49% | 81.78% | 74.66% | 70.91% | 83.12% | | Allowance for loan losses to loans held for investment | 1.40% | 0.71% | 0.86% | 0.85% | 0.63% | | Nonperforming loans to total assets | 0.44% | 0.54% | 1.39% | 1.78% | 0.29% |[221] Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance and condition, highlighting significant changes in 2020 compared to 2019, covering critical accounting policies, detailed analysis of the loan portfolio, non-performing assets, investment securities, deposits, borrowings, liquidity, capital adequacy, off-balance sheet activities, and interest rate risk management - The discussion analyzes the Company's consolidated financial condition and results of operations, to be read with the consolidated financial statements[222] - Net income for 2020 was $17.7 million, a significant increase from $4.6 million in 2019, with basic and diluted EPS rising from $1.10 to $3.11[245] Cautionary Note About Forward-Looking Statements This section warns that forward-looking statements in the 10-K are subject to risks and uncertainties, and actual results may differ materially due to factors like economic conditions, non-performing assets, real estate market downturns, monetary policies, consumer habits, technological changes, regulatory shifts, the COVID-19 pandemic, natural disasters, and acquisition integration challenges, cautioning investors not to place undue reliance on these statements - Forward-looking statements in the Form 10-K are subject to known and unknown risks and uncertainties, and actual results may differ materially from expectations[223] - Factors that could cause differences include the strength of the economy, changes in non-performing assets, real estate market downturns, monetary and fiscal policies, consumer habits, technological changes, regulatory conditions, the COVID-19 pandemic, natural disasters, and challenges in managing growth or integrating acquisitions[223][224][225] - Investors are cautioned not to place undue reliance on forward-looking statements, and the Company will not update them to reflect actual results or changes in factors[226] Critical Accounting Policies The Company's critical accounting policies involve significant management judgment, assumptions, and estimates that can materially impact financial statements, primarily relating to the allowance for loan losses, fair value measurements of assets and liabilities, derivatives, and income taxes - Critical accounting policies require significant management judgment, assumptions, and estimates, which can materially impact consolidated financial statements[227][228] - Key critical policies include the allowance for loan losses, fair value measurements of certain assets and liabilities, derivatives, and income taxes[229] General The Company's accounting principles under GAAP are complex, requiring management to make significant judgments, assumptions, and estimates, with changes in these subjective assessments potentially materially impacting the consolidated financial statements - GAAP accounting principles are complex, requiring management to apply significant judgment, assumptions, and estimates[227] - Critical policies are highly dependent on subjective or complex judgments, and changes could significantly impact financial statements[228] Allowance for Loan Losses The allowance for loan losses (ALL) is maintained to absorb probable losses in the loan portfolio, based on risk characteristics, problem loans, historical losses, economic conditions, and regulatory guidance, consisting of specific components for impaired loans and general components for non-impaired loans, adjusted for qualitative and environmental factors, with its determination being inherently subjective - The allowance for loan losses (ALL) is maintained to absorb probable losses in the loan portfolio, based on risk characteristics, problem loans, historical losses, and economic conditions[230] - The ALL has specific components for impaired loans and general components for non-impaired loans, adjusted for qualitative and environmental factors like delinquency trends, charge-offs, and economic conditions[231][232] - The determination of ALL is highly subjective, requiring significant estimates that are susceptible to change, and future adjustments may be necessary[232][233] Allowance for Loan Losses—Acquired Loans For acquired loans, the allowance for loan losses is established based on the methodology used for originated loans, with an allowance set for ASC 310-30 loans if borrower credit quality deteriorates post-acquisition, and for ASC 310-20 loans if inherent losses exceed the remaining purchase discount - For acquired loans under ASC 310-30, an allowance for loan losses is established if borrower credit quality deteriorates post-acquisition[233] - For acquired loans under ASC 310-20, an allowance may be established if inherent losses exceed the remaining purchase discount, similar to originated loans[234] Purchased Credit-Impaired Loans Purchased credit-impaired (PCI) loans, acquired at a discount due to credit quality, are initially recorded at fair value with no allowance for loan losses, with interest income recognized based on expected cash flows, and increases in expected cash flows recognized as additional accretable yield, while decreases are recognized as impairment through a loss provision and an increase in the allowance for loan losses, reflecting only losses incurred after acquisition - PCI loans are initially recorded at fair value with no allowance for loan losses, and interest income is recognized based on expected cash flows[235] - Increases in expected cash flows post-acquisition are recognized as additional accretable yield, while decreases are recognized as impairment through a loss provision and increased allowance for loan losses[237] - Management periodically evaluates cash flow estimates for PCI loans, which may result in changes to accretable yield or reclassifications[238] Fair Value Measurements The Company determines fair values of financial instruments using a three-level hierarchy that prioritizes observable inputs, with Level 1 for quoted prices in active markets, Level 2 for observable inputs from less active markets or models, and Level 3 for unobservable inputs, noting that presented values are estimates and may not be realizable - Fair values of financial instruments are determined using a hierarchy (Level 1, 2, 3) that prioritizes observable inputs[239] - Level 1 uses quoted prices in active markets; Level 2 uses observable inputs from less active markets or models; Level 3 uses unobservable inputs[512] - Valuation models and assumptions can produce materially different fair value estimates, and presented values may not represent future or realizable fair values[239] Derivatives Derivatives, including forward sales of to-be-announced mortgage-backed securities (TBA MBS) and interest rate lock commitments (IRLCs), are recognized as assets and liabilities at fair value on the consolidated balance sheets, used by the Company to manage interest rate risk, with fair values for IRLCs and best efforts forward delivery commitments estimated due to inactive stand-alone markets, and risks including counterparty non-performance - Derivatives, such as forward sales of TBA MBS and interest rate lock commitments, are recognized as assets and liabilities at fair value on the consolidated balance sheets[240][241] - The Company uses TBA contracts to control interest rate risk between rate lock commitment and mandatory sale of mortgage loans[241] - Fair values of rate lock commitments and best efforts forward delivery commitments are estimated due to the absence of actively traded stand-alone markets[242] - Risks associated with forward delivery contracts include counterparty non-performance and the obligation to deliver MBS even if underlying loans do not close[242] Income Taxes Income taxes are accounted for using the balance sheet method (ASC 740), which recognizes current and deferred tax liabilities and assets for future tax consequences of temporary differences between financial statement and tax bases, with changes in tax rates and laws given current recognition, and the benefit of a tax position recognized if it is more likely than not to be sustained upon examination - Income taxes are accounted for using the balance sheet method (ASC 740), recognizing current and deferred tax liabilities and assets[244] - Deferred tax assets/liabilities are based on temporary differences between book and tax bases of assets and liabilities, with current recognition of tax rate and law changes[244] - A tax position's benefit is recognized if it is more likely than not to be sustained upon examination, measured as the largest amount likely to be realized[395] Comparison of Results of Operations for the Years Ended December 31, 2020 and 2019 The Company experienced significant growth in net income in 2020, reaching $17.7 million compared to $4.6 million in 2019, with EPS increasing from $1.10 to $3.11, primarily driven by a substantial increase in net interest income and a surge in non-interest income from mortgage banking activities, though non-interest expenses also rose sharply due to increased salaries and benefits and merger-related costs, and the provision for loan losses increased significantly due to the COVID-19 pandemic - Net Income and EPS Comparison (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | Change (%) | | :----------------------------------------- | :----------------- | :----------------- | :------------------- | :--------- | | Net income attributable to Blue Ridge Bankshares, Inc. | 17,696 | 4,580 | 13,116 | 286.38% | | Basic and diluted earnings per share | 3.11 | 1.10 | 2.01 | 182.73% |[245] Net Interest Income Net interest income significantly increased to $44.5 million in 2020 from $21.4 million in 2019, with net interest margin rising to 3.49% from 3.35%, primarily due to substantial growth in the loan portfolio, particularly from Paycheck Protection Program (PPP) loans, which contributed $9.6 million in net interest and fees, and the Company utilized Federal Reserve's PPPLF borrowings at a low rate to fund these loans - Net Interest Income and Margin (2020 vs. 2019) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | Change ($ thousands) | Change (%) | | :------------------ | :----------------- | :----------------- | :------------------- | :--------- | | Net interest income | 44,510 | 21,368 | 23,142 | 108.39% | | Net interest margin | 3.49% | 3.35% | 0.14% | 4.18%