Blue Ridge Bankshares, Inc. Announces Second Quarter and First Half 2021 Earnings

CHARLOTTESVILLE, Va., July 29, 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 June 30, 2021.  For the second quarter of 2021, the Company reported net income of $28.6 million, or $1.54 earnings per diluted common share, compared to $4.2 million, or $0.28 earnings per diluted common share, for the first quarter of 2021, and $6.2 million, or $0.73 earnings per diluted common share, for the second quarter of 2020.  For the first half of 2021, the Company reported net income of $32.9 million, or $1.94 earnings per diluted common share, compared to $7.1 million, or $0.83 earnings per diluted common share, for the first half of 2020.  Earnings per common share for all periods presented is reflective of the 3-for-2 stock split effective April 30, 2021.  Net income for the second quarter and first half of 2021 included an after-tax gain of $19.2 million resulting from the sale 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 half 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 anticipates the FVCB Merger will close in the fourth quarter of 2021 or in the first quarter of 2022.

Net income for the second and first quarters of 2021 included approximately $1.0 million and $7.1 million, respectively, in after-tax expenses related to the Bay Banks Merger and the FVCB Merger, while earnings for the second quarter of 2020 included approximately $140 thousand in after-tax merger-related expenses.

"We had a very positive and busy second quarter," said Brian K. Plum, President and Chief Executive Officer.  "The sale of most of our PPP loans put a capstone on our monumental efforts to assist tens of thousands of businesses and families.  We are proud of the positive impact we had in facilitating the usage of this critical government program at a time when our communities and country needed it the most."

"The announced partnership with FVCB will further enhance our efforts to invest in technology and resources needed to stay in front of our evolving customer needs," continued Plum.  "We are excited about the future and the numerous opportunities we see across the financial services landscape."

Paycheck Protection Program

In the first half of 2021, the Company funded over 20,000 loans for approximately $728 million of PPP loans 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 June 30, 2021, the Company holds approximately 600 PPP2 loans with an aggregate principal balance of $15.7 million and unearned fees, net of deferred costs, of $367 thousand.  PPP2 loans, if not forgiven, have a five-year term and a stated interest rate of 1%.  As of June 30, 2021, the Company holds $115.0 million of PPP loans funded in 2020 pursuant to the Coronavirus Aid, Relief, and Economic Security Act ("PPP1 loans").  Remaining unearned fees associated with PPP1 loans were $69 thousand as of June 30, 2021.  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 PPP1 loans and PPP2 loans in the amounts of $9.5 million and $2.1 million, respectively, were recognized as interest income in the second quarter of 2021, and these amounts for the first half of 2021 were $12.8 million and $3.3 million, respectively.  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 June 30, 2021, outstanding advances under the PPPLF were $97.4 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 second quarter of 2021 with numerous active partnerships, including Unit, Flexible Finance, Increase, Upgrade, Kashable, Meritize, Jaris, Aeldra, Grow Credit, and MentorWorks.  Fintech relationships have resulted in over $45.0 million in related deposits on the balance sheet as of June 30, 2021.

Balance Sheet

The Company reported total assets of $2.76 billion at June 30, 2021, an increase of $1.27 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 $996.8 million to $1.73 billion at June 30, 2021 from $732.9 million at December 31, 2020. 

Total deposits at June 30, 2021 were $2.19 billion, an increase of $1.25 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 over $45.0 million of deposit growth in the first half of 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 subordinated notes with an initial aggregate principal balance of $10 million in the second quarter of 2021.

Income Statement

Net Interest Income

Net interest income was $30.5 million for the second quarter of 2021 compared to $20.0 million for the first quarter of 2021 and $10.6 million for the second quarter of 2020.  Net interest income in the second quarter of 2021 included net interest income added by the Bay Banks Merger, while net interest income in the first quarter of 2021 included that from the Bay Banks Merger from the effective date of the merger, January 31, 2021.  Included in interest income for the second quarter of 2021 were approximately $9.5 million and $2.1 million in PPP fees, net of costs, and interest income, respectively, whereas in the first quarter of 2021, PPP fees, net of costs, and interest income were $3.3 million and $1.2 million, respectively.  Funding costs for PPP loans under the PPPLF resulted in approximately $382 thousand and $304 thousand of interest expense for the second and first quarters of 2021, respectively.  Excluding net interest income from PPP loans, net interest income increased $3.3 million for the second quarter of 2021 compared to the first quarter of 2021.  Additionally, accretion of acquired loan discounts included in interest income in the second and first quarters of 2021 were $865 thousand and $387 thousand, respectively, while amortization of purchase accounting adjustments on assumed time deposits and borrowings were $1.0 million and $724 thousand in the same respective periods.

Net interest margin for the second quarter of 2021 was 3.82% compared to 3.43% for the first quarter of 2021 and 3.19% for the second quarter of 2020.  PPP loans, including the corresponding funding, had a 55, 6, and 11 basis point positive effect on the Company's net interest margin for the second quarter of 2021, first quarter of 2021, and second quarter of 2020, respectively.  Additionally, accretion and amortization of purchase accounting adjustments related to the Bay Banks Merger had a 22 and 17 basis point positive effect on net interest margin for the second and first quarters of 2021, respectively.  Excluding the impact of PPP and purchase accounting adjustments, the Company continues to experience a decline in net interest margin as higher priced loans mature, partially offset by the re-pricing of higher priced term deposits.  Cost of deposits were 0.29% for the second quarter of 2021 down from 0.36% for the first quarter of 2021 and 0.65% for the second quarter of 2020.

Provision for Loan Losses

The Company recorded no provision for loan losses for the quarter and year-to-date periods ended June 30, 2021 compared to provision expense of $3.5 million and $4.1 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 first half of 2021 due to the release of the COVID-19 factor was offset by organic loan growth, specific reserves for impaired loans, and reserve needs for loans that have migrated from the Company's acquired loan pools.

Noninterest Income

Noninterest income for the second quarter of 2021 was $36.4 million compared to $15.8 million and $16.4 million for the first quarter of 2021 and the second 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 $9.0 million of noninterest income in the second quarter compared to $12.7 million and $15.3 million in the first quarter of 2021 and second quarter of 2020, respectively.  Other income in the second quarter of 2021 included a $640 thousand fair value adjustment for one of the Company's investments in a fintech company.  Noninterest income for the first halves of 2021 and 2020 was $52.2 million and $21.2 million, respectively.  Excluding the gain on sale of PPP loans, noninterest income for the first half of 2021 was $27.9 million, a $6.7 million increase over the same period of 2020, primarily attributable to $3.5 million of income from mortgage servicing rights, $1.4 million of wealth and trust management fees, and $954 thousand of gains on the sale of government guaranteed loans.

Noninterest Expense

Noninterest expense for both the second and first quarters of 2021 was $30.5 million compared to $15.6 million for the second 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 second and first quarters of 2021 and the second quarter of 2020 were $1.2 million, $9.0 million, and $177 thousand, respectively.  Salaries and employee benefits increased $3.6 million in the second quarter of 2021 from the first quarter of 2021.  This increase was primarily due to a full quarter of expenses from the Bay Banks Merger, greater incentive expense, primarily related to the PPP, and higher headcount, primarily to support the Company's noninterest income business lines.  These increases were partially offset by lower salaries and employee benefits in the Company's mortgage division, which declined approximately $1.5 million in the second quarter of 2021 from the first quarter of 2021. Noninterest expense for the first halves of 2021 and 2020 was $61.1 million and $26.8 million, respectively.  Included in these amounts were merger-related expenses of $10.3 million and $446 thousand for the same respective periods.

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 $764 thousand for the second quarter of 2021 compared to $2.4 million for the first quarter of 2021.  Mortgage volumes for the second and the first quarters of 2021 were $337.5 million and $361.4 million, respectively.  Income related to mortgage servicing rights decreased to $1.7 million for the second quarter of 2021 from $3.4 million for the first quarter of 2021.

Asset Quality

Nonperforming loans, which include nonaccrual loans and loans 90 days or more past due and accruing interest, totaled $11.9 million at June 30, 2021, an increase of $5.4 million from December 31, 2020.  The ratio of nonperforming loans to total assets was 0.43% as of June 30, 2021 and 0.44% as of December 31, 2020.  The Company's allowance for loan losses was $13.0 million at June 30, 2021, or 0.75% 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.  The remaining acquired loan discounts related to loans acquired in the Company's mergers were $17.0 million as of June 30, 2021 compared to $1.2 million as of December 31, 2020. 

Capital

The Company continually monitors its capital position and remains confident in its ability to maintain capital levels at amounts required for regulatory purposes and for the payment of its common stock dividend.  Tangible book value per share, a non-GAAP (defined below) measure, was $12.49 and $10.03 as of June 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.