Blue Ridge Bankshares, Inc. Announces Third Quarter 2022 Results

CHARLOTTESVILLE, Va., Oct. 27, 2022 /PRNewswire/ -- Blue Ridge Bankshares, Inc. (the "Company") (NYSE American: BRBS), the holding company of Blue Ridge Bank, National Association ("Blue Ridge Bank" or the "Bank") and BRB Financial Group, Inc. ("BRB Financial Group"), announced today financial results for the quarter ended September 30, 2022. For the third quarter of 2022, the Company reported net income from continuing operations of $2.7 million, or $0.15 earnings per diluted common share, compared to $1.1 million, or $0.06 earnings per diluted common share, for the second quarter of 2022, and $6.9 million, or $0.36 earnings per diluted common share, for the third quarter of 2021.

"Our third quarter results reflect several positive operating trends, including strong loan growth, stability in low-cost deposit balances amidst cyclical headwinds, and significant net interest margin expansion, which drove notable growth in net interest income, as compared to the prior quarter and year-ago periods," said Brian K. Plum, President and Chief Executive Officer of the Company. "Moreover, the foundation of our company remains strong, with measures of asset quality generally ranging from stable to modestly improved from recent periods." 

Plum continued, "At the same time, we remain mindful of emerging cyclical and macroeconomic challenges, which during the third quarter impacted our mortgage business and fee-based revenue growth, while other developments, notably the previously disclosed entry of Blue Ridge Bank into a formal written agreement with the Office of the Comptroller of the Currency (the "OCC"), the Bank's primary regulator, contributed to an increase in our expense base, impacting our earnings for the quarter."

Key highlights for the third quarter:

• As previously disclosed, Blue Ridge Bank entered into a formal written agreement during the third quarter
• On August 29, 2022, Blue Ridge Bank entered into a formal written agreement (the "Agreement") with the OCC. The Agreement principally concerns the Bank's fintech line of business and requires the Bank to continue enhancing its controls for assessing and managing the third-party, BSA/AML, and IT risks stemming from its fintech partnerships. A complete copy of the Agreement was furnished in a Form 8-K filed with the Securities and Exchange Commission ("SEC") on September 1, 2022 and can be accessed on the SEC's website (www.sec.gov) and the Company's website (www.mybrb.com). The Company is actively working to bring the Bank's fintech policies, procedures, and operations into conformity with OCC directives and believes its work to date has been delivered on schedule.
• Loan growth and net interest margin expansion drove robust growth in net interest income
• Net interest income was $28.7 million for the third quarter of 2022, an increase of $4.6 million, or 19.1%, from the second quarter of 2022, and $7.6 million, or 35.8%, from the third quarter of 2021.
• Loans held for investment, excluding Paycheck Protection Plan ("PPP") loans, were $2.16 billion at September 30, 2022, an increase of $110.0 million, or 5.4%, from June 30, 2022, and $433.5 million, or 25.1%, from September 30, 2021. Loan growth as compared to the prior quarter and year-ago periods was partially driven by the Company's middle market and specialized lending teams.
• Total deposit balances were $2.41 billion at September 30, 2022, an increase of $73.8 million, or 3.2%, from June 30, 2022, and $209.3 million, or 9.5%, from September 30, 2021.
• Noninterest-bearing deposits were $787.5 million at September 30, 2022, an increase of $1.8 million, or 0.2%, from June 30, 2022, and $102.7 million, or 15.0%, from September 30, 2021. Growth in noninterest-bearing deposits from the year-ago period was primarily attributable to the Company's fintech partnerships. At September 30, 2022, noninterest-bearing deposits represented 32.7% of total deposits, as compared to 33.6% at June 30, 2022, and 31.1% at September 30, 2021. 
• Deposits related to fintech relationships were approximately $529 million as of September 30, 2022, an increase of $134 million, or 33.9% from June 30, 2022, and $452 million, or 587.0%, from September 30, 2021. Deposits related to fintech relationships represented 22.0% of total deposits at September 30, 2022, as compared to 16.9% at June 30, 2022, and 3.5% at September 30, 2021.
• Net interest margin was 4.27% for the third quarter of 2022, as compared to 3.89% for the second quarter of 2022, and 3.32% for the third quarter of 2021. Purchase accounting adjustments had a 17, 29, and 15 basis point effect on net interest margin for the third and second quarters of 2022 and the third quarter of 2021, respectively. Net interest margin expansion during the third quarter of 2022, relative to both prior periods, reflected strong loan growth, higher loan yields primarily due to the beneficial impact of higher market interest rates, and a positive shift in the mix of earning assets, partially offset by higher funding costs.
• Cost of funds was 0.69% for the third quarter of 2022, as compared to 0.36% for the second quarter of 2022, and 0.43% for the third quarter of 2021. The increase in cost of funds relative to the second quarter of 2022 primarily reflected the impact of higher market interest rates, higher balances of borrowings, and a shift in the mix of deposits, as growth in interest-bearing deposit balances significantly outpaced the increase in noninterest-bearing deposits. 
• Measures of foundational strength remained intact
• Nonperforming loans totaled $10.1 million, representing 0.35% of total assets, at September 30, 2022, as compared to $12.2 million, representing 0.44% of total assets, at June 30, 2022, and $15.2 million, representing 0.56% of total assets at September 30, 2021.
• The Company recorded a provision for loan losses of $3.9 million in the third quarter of 2022 compared to $7.5 million in the second quarter of 2022 and no provision in the third quarter of 2021. Provision for loan losses in the 2022 periods was primarily attributable to reserves for loan growth, qualitative factor adjustments due to changes in economic conditions, and higher specific reserves for impaired loans.
• The Company's allowance for loan losses was $20.5 million at September 30, 2022, or 0.95% of gross loans held for investment, excluding PPP loans, compared to 0.84% at June 30, 2022, and 0.73% at September 30, 2021. 
• The ratio of tangible stockholders' equity to tangible total assets was 7.7%¹ at September 30, 2022, as compared to 8.3%¹ at June 30, 2022, and 8.9%¹ at September 30, 2021. Tangible book value per common share was $11.51¹ at September 30, 2022, compared to $12.21¹ at June 30, 2022, and $12.69¹ at September 30, 2021.
• Remediation costs related to regulatory matters drove expense growth
• Noninterest expense was $29.2 million for the third quarter of 2022, an increase of $3.9 million, or 15.4%, from the second quarter of 2022 and $3.9 million, or 15.4%, from the third quarter of 2021.
• The increase relative to both prior periods primarily reflected expenses incurred in the remediation of regulatory matters, which totaled $4.0 million, $0.5 million, and $0 for the third and second quarters of 2022, and third quarter of 2021, respectively. 
• Excluding costs related to remediation of regulatory matters, noninterest expense during the third quarter of 2022 increased by $0.4 million, due primarily to the addition of commercial lenders and personnel to support the fintech business, partially offset by lower salaries and employee benefits expenses in the mortgage division.
• Fee income lower on cyclical mortgage decline
• Noninterest income was $8.0 million for the third quarter of 2022, a decline of $2.2 million, or 21.8%, from the second quarter of 2022, and $5.3 million, or 40.1%, from the third quarter of 2021.
• The decline in noninterest income relative to both prior periods was primarily attributable to lower income from residential mortgage banking and mortgage servicing rights. Lower residential mortgage banking income primarily reflects the sharp increase in market interest rates in the current year.

Net income from continuing operations before income taxes and provision for loan losses was $7.4 million for the third quarter of 2022 compared to $9.0 million for the second quarter of 2022. In the third and second quarters of 2022, net income from continuing operations before income taxes included $4.0 million and $0.5 million, respectively, of costs incurred for professional services related to regulatory remediation efforts.

For the nine months ended September 30, 2022, net income from continuing operations of $21.3 million, or $1.13 earnings per diluted common share, compared to $39.8 million, or $2.27 earnings per diluted common share, for the same period of 2021. Net income in the 2021 period included a $24.3 million pre-tax net gain on the sale of PPP loans, and $11.7 million, pre-tax, of merger-related expenses, while net income in the 2022 period included $4.6 million, pre-tax, of merger-related expenses and costs incurred related to regulatory remediation efforts.

Total assets were $2.88 billion as of September 30, 2022, an increase of $216.3 million, from $2.67 billion as of December 31, 2021. Reported loans held for investment, excluding PPP loans, grew $381.2 million year-to-date 2022, an annualized growth rate of 28.6%.

In the first quarter of 2022, the Company sold its majority interest in MoneyWise Payroll Solutions, Inc. ("MoneyWise") to the holder of the minority interest in MoneyWise. Asset and liability balances and income statement amounts related to MoneyWise are reported as discontinued operations for all periods presented.

The Company completed the merger of Bay Banks of Virginia, Inc. ("Bay Banks"), the holding company of Virginia Commonwealth Bank, into the Company on January 31, 2021. Immediately following the completion of the merger, Virginia Commonwealth Bank was merged into Blue Ridge Bank. Earnings for the first quarter and year-to-date periods ended September 30, 2021 included the earnings of Bay Banks from the effective date of the merger.

Fintech Business

The Company's fintech partnerships include Unit, Flexible Finance, Increase, Upgrade, Kashable, Jaris, Grow Credit, MentorWorks, and Marlette. Deposits related to fintech relationships were approximately $529 million as of September 30, 2022, up from approximately $189 million as of December 31, 2021. Loans held for sale and loans held for investment related to fintech relationships totaled $15.1 million and $24.1 million as of September 30, 2022 and December 31, 2021, respectively. Interest and fee income related to fintech partnerships represented approximately $2.9 million and $1.8 million of revenue for the Company for the third and second quarters of 2022, respectively. Included in deposits related to fintech relationships were assets managed by BRB Financial Group's trust division of $54.1 million as of September 30, 2022.

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, reported a net loss of $1.0 million for the third quarter of 2022 compared to net income of $0.4 million for the second quarter of 2022. Residential mortgage banking income decreased to $2.6 million in the third quarter of 2022 from $4.4 million in the second quarter of 2022. Income attributable to mortgage servicing rights was $0.5 million and $1.6 million for the third and second quarters of 2022, respectively. Mortgage servicing rights income in the third and second quarters of 2022 was attributable to fair value adjustments of $(0.1) million and $(0.2) million, respectively, and new servicing rights retained of $0.7 million and $1.8 million, respectively. Quarterly mortgage volumes declined to $83.0 million for the third quarter of 2022 from $117.8 million for the second quarter of 2022. Noninterest expenses reported for the Company's mortgage division were $4.5 million and $5.7 million for the third and second quarters of 2022, respectively.

Income Statement

Net Interest Income

Net interest income was $28.7 million for the third quarter of 2022 compared to $24.1 million for the second quarter of 2022 and $21.1 million for the third quarter of 2021, while accretion of acquired loan discounts included in interest income was $0.8 million, $1.3 million, and $0.1 million for the same respective periods. Amortization of purchase accounting adjustments on assumed time deposits and borrowings, which reduced interest expense, was $0.4 million, $0.5 million, and $0.9 million for the same respective periods. Interest income in the third quarter of 2022 increased $6.9 million from the second quarter of 2022, while interest expense increased $2.3 million over the same comparative period. Interest income in the third quarter of 2022 benefited from higher average balances of and yields and fees on loans held for investment, while funding costs increased primarily due to repricing of select interest-bearing deposit accounts and higher average balances and cost on Federal Home Loan Bank of Atlanta advances.

Average balances of interest-earning assets increased $202.9 million in the third quarter of 2022 from the second quarter of 2022, primarily due to higher average balances of loans held for investment, which increased $231.5 million over the same period. Yields on average loans held for investment increased to 5.67% for the third quarter of 2022 from 4.97% for the second quarter of 2022, primarily due to recent loan growth and the re-pricing of variable-rate loans in the higher rate environment and higher fee income.

Cost of funds was 0.69% and 0.36% for the third and second quarters of 2022 and 0.43% for the third quarter of 2021, while cost of deposits was 0.50%, 0.26%, and 0.29% for the same respective periods.

Net interest margin for the third and second quarters of 2022 and the third quarter of 2021 was 4.27%, 3.89%, and 3.32%, respectively. Accretion and amortization of purchase accounting adjustments had a 17, 29, and 15 basis point positive effect on net interest margin for the same respective periods.

Net interest income was $76.4 million and $71.6 million for the year-to-date September 30, 2022 and 2021 periods, respectively, while net interest margin was 4.02% and 3.55% for the same respective periods. Accretion and amortization of purchase accounting adjustments and the contributions from PPP loans, including the corresponding funding, had a 31 and 41 basis point positive effect on net interest margin for the nine months ended September 30, 2022 and 2021, respectively.

Provision for Loan Losses

The Company recorded a provision for loan losses of $3.9 million in the third quarter of 2022 compared to $7.5 million in the second quarter of 2022 and no provision in the third quarter of 2021. Provision for loan losses for the nine months ended September 30, 2022 and 2021 was $13.9 million and $0, respectively. Provision for loan losses in the 2022 periods was primarily attributable to reserves for loan growth, qualitative factor adjustments due to changes in economic conditions, and higher specific reserves for impaired loans.

Noninterest Income

Noninterest income for the third and second quarters of 2022 was $8.0 million and $10.2 million, respectively, compared to $13.3 million for the third quarter of 2021. The decline in noninterest income in the third quarter of 2022 was primarily attributable to lower income from residential mortgage banking and mortgage servicing rights income.

Noninterest income for the nine months ended September 30, 2022 and 2021 was $42.3 million and $65.0 million, respectively. Excluding the fair value gain for the Company's equity investments recognized in the first quarter of 2022 and the net gain on the sale of the PPP loans in the second quarter of 2021, noninterest income for the nine months ended September 30, 2022 and 2021 was $33.0 million and $40.7 million. This comparative period decline was primarily attributable to lower residential mortgage banking and mortgage servicing rights income, partially offset by higher gains on sales of government guaranteed loans, higher fee income related to fintech partnerships, and a net gain on the sale of a former branch location in the first quarter of 2022.

Noninterest Expense

Noninterest expense for the third and second quarter of 2022 was $29.2 million and $25.3 million, respectively, compared to $25.3 million for the third quarter of 2021. Excluding expenses incurred in the remediation of regulatory matters, noninterest expense increased $0.4 million in the third quarter of 2022 from the second quarter of 2022. Lower salaries and employee benefit expenses in the mortgage division were partially offset by costs incurred in the addition of commercial lenders and support personnel and personnel to support the fintech business. The efficiency ratio for the third and second quarters of 2022 was 79.7% and 73.9%, respectively. Excluding regulatory remediation expenses, the efficiency ratio for the same respective periods was 68.7%¹ and 72.4%¹.

Noninterest expense for the nine months ended September 30, 2022 and 2021 was $77.5 million and $85.8 million, respectively. Excluding regulatory remediation expenses in the 2022 period and merger-related expenses in both the 2022 and 2021 periods, noninterest expense was $72.6 million and $74.1 million for the same respective periods.

Balance Sheet

Loans held for investment, excluding PPP loans, increased $381.2 million to $2.16 billion as of September 30, 2022, from $1.78 billion as of December 31, 2021. The Company's middle market and specialized lending teams, which began building in the first quarter of 2022, contributed to this loan growth.

Loans held for sale, which was comprised primarily of residential mortgages, decreased to $25.8 million at September 30, 2022, from $121.9 million at December 31, 2021, primarily attributable to lower mortgage activity.

Total deposits at September 30, 2022, were $2.41 billion, an increase of $111.7 million from December 31, 2021. Noninterest-bearing demand deposit growth was $101.7 million in the nine months ended September 30, 2022, primarily due to the Company's fintech partnerships. Noninterest-bearing demand deposit accounts represented 32.7% and 29.8% of total deposits as of September 30, 2022 and December 31, 2021, respectively.

Asset Quality

Nonperforming loans, which include nonaccrual loans and loans 90 days or more past due and accruing interest², totaled $10.1 million at September 30, 2022 and $16.1 million at December 31, 2021. The ratio of nonperforming loans to total assets was 0.35% and 0.60% at September 30, 2022, and December 31, 2021, respectively. The Company's allowance for loan losses was $20.5 million at September 30, 2022, or 0.95% of gross loans held for investment, excluding PPP loans³, compared to 0.68% at December 31, 2021. The increase in this ratio from December 31, 2021 to September 30, 2022, was primarily attributable to additional allowance for loan growth in the first three quarters of 2022 and greater qualitative factor adjustments, as noted previously. Remaining acquired loan discounts related to loans acquired in the Company's completed mergers were $10.4 million as of September 30, 2022, and $16.2 million as of December 31, 2021.

Capital

The Company previously announced that on October 11, 2022, its board of directors declared a $0.1225 per common share quarterly dividend, payable October 31, 2022, to shareholders of record as of October 24, 2022. Tangible book value per share was $11.51¹ and $13.01¹ as of September 30, 2022 and December 31, 2021, respectively, while book value per share was $13.22 and $14.76 as of the same respective periods.

Primarily as a result of the increase in market interest rates in 2022, the fair value of the Company's portfolio of securities available for sale declined approximately $57.9 million from December 31, 2021, resulting in an after-tax decline in stockholders' equity of $45.7 million for the nine months ended September 30, 2022. The accumulated other comprehensive loss ("AOCL") attributable to this securities portfolio as of September 30, 2022, was $49.4 million, or $2.60 in book value per share, compared to a $3.6 million AOCL, or $0.19 in book value per share, as of December 31, 2021.

¹ Non-GAAP financial measures are defined below. Further information can be found at the end of this press release.

² Excludes purchased credit-impaired loans.

³ The Company holds no allowance for loan losses on PPP loans as they are fully guaranteed by the U.S. government.

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 and/or military conflicts, 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, and the ability to comply with, the terms of the formal written agreement between the Bank and the OCC; (xii) the impact of changes in laws, regulations and policies affecting the real estate industry; (xiii) the effect of changes in accounting policies and practices, as may be adopted from time to time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the Financial Accounting Standards Board or other accounting standards setting bodies; (xiv) the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers; (xv) the willingness of users to substitute competitors' products and services for the Company's products and services; (xvi) the outcome of any legal proceedings that may be instituted against the Company; (xvii) reputational risk and potential adverse reactions of the Company's customers, suppliers, employees or other business partners; (xviii) the effects of 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 U.S. Small Business Administration; and (xiv) other risks and factors identified in the "Risk Factors" sections and elsewhere in documents the Company files from time to time with the SEC.

SOURCE Blue Ridge Bankshares, Inc.

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