BLUE RIDGE BANKSHARES, INC. - Quarter Report: 2021 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2021

OR

For the transition period from                         to                         

Commission File Number: 001-39165

BLUE RIDGE BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (540) 743-6521

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐    No  ☒

As of August 1, 2021, the registrant had 18,777,557 shares of common stock, no par value per share, outstanding.

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PART I.    FINANCIAL INFORMATION

Item 1. Financial Statements

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Blue Ridge Bankshares, Inc.

Consolidated Balance Sheets

See accompanying notes to unaudited consolidated financial statements.

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Blue Ridge Bankshares, Inc.

Consolidated Statements of Income

(unaudited)

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See accompanying notes to unaudited consolidated financial statements.

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Blue Ridge Bankshares, Inc.

Consolidated Statements of Comprehensive Income

(unaudited)

See accompanying notes to unaudited consolidated financial statements.

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Blue Ridge Bankshares, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

(unaudited)

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See accompanying notes to unaudited consolidated financial statements.

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Blue Ridge Bankshares, Inc.

Consolidated Statements of Cash Flows

(unaudited)

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See accompanying notes to unaudited consolidated financial statements.

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Notes to Consolidated Financial Statements (Unaudited)

Note 1 – Organization and Basis of Presentation

 Blue Ridge Bankshares, Inc. (the "Company"), a Virginia corporation, was formed in 1988 and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. The Company is headquartered in Charlottesville, Virginia and conducts its business activities primarily through the branch offices of its wholly-owned subsidiary bank, Blue Ridge Bank, National Association (the "Bank") and its wealth and trust management subsidiary, BRB Financial Group, Inc. (the “Financial Group”). The Company exists primarily for the purposes of holding the stock of its subsidiaries, the Bank and the Financial Group.

The Bank operates under a national charter and is subject to regulation by the Office of the Comptroller of the Currency (the “OCC”). Consequently, it undergoes periodic examinations by this regulatory authority.

On January 31, 2021, the Company completed a merger with Bay Banks of Virginia, Inc. (“Bay Banks”), a bank holding company conducting substantially all its operations through its bank subsidiary, Virginia Commonwealth Bank, and the Financial Group (formerly VCB Financial Group, Inc.). Immediately following the Company’s merger with Bay Banks, Bay Banks’ subsidiary bank was merged with and into the Bank, while the Financial Group became a subsidiary of the Company (collectively, the “Bay Banks Merger”).

The Financial Group provides management services for personal and corporate trusts, including estate planning, estate settlement and trust administration, and investment and wealth management services from its Richmond and Kilmarnock, Virginia offices. Products and services include revocable and irrevocable living trusts, testamentary trusts, custodial accounts, investment planning, brokerage services, insurance investment managed accounts, and managed and self-directed individual retirement accounts.

The accompanying unaudited consolidated financial statements of the Company include the accounts of the Bank, the Financial Group, PVB Properties, LLC, and MoneyWise Payroll Solutions, Inc. (net of noncontrolling interest) and were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the banking industry. All significant intercompany balances and transactions have been eliminated in consolidation. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Information contained herein as of June 30, 2021 includes the balances of Bay Banks; information contained herein as of and for the year ended December 31, 2020 does not include the balances of Bay Banks. Information for the six months ended June 30, 2021 includes the operations of Bay Banks only for the period immediately following the effective date of the Bay Banks Merger (January 31, 2021) through June 30, 2021.

In March 2021, the Company’s board of directors approved a three-for-two stock split (“Stock Split”) effected in the form of a 50% stock dividend on the Company’s common stock outstanding paid on April 30, 2021 to shareholders of record as of April 20, 2021. Cash was paid in lieu of fractional shares based on the closing price of common stock on the record date. References made to outstanding shares or per share amounts in the accompanying consolidated financial statements and disclosures have been adjusted to reflect the Stock Split for all periods presented, unless otherwise noted.

Certain amounts presented in the consolidated financial statements of prior periods have been reclassified to conform to current year presentations, including the following circumstance. The reclassifications had no effect on net income, net income per share, or shareholders’ equity as previously reported.

Correction of Immaterial Classification Error

During the first quarter of 2021, the Company determined a loan arrangement with a third-party financial institution for the purpose of residential mortgage loan originations, which had been reported on its consolidated balance sheets in loans held for sale, should have been reported as loans held for investment.  

The Company has changed the classification of this loan on its December 31, 2020 consolidated balance sheet to reflect it as held for investment. The change in classification resulted in a $30.4 million decrease from what was

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previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 in loans held for sale with a corresponding increase of the same amount in loans held for investment as of December 31, 2020.

The change in classification did not affect the Company’s reported earnings for 2020, the Company does not believe any material allowance for loan losses (“ALL”) would have been necessary for this loan as of December 31, 2020, and the Company believes its ALL was adequate as of December 31, 2020. This reclassification did not change total loans or total assets on the Company’s consolidated balance sheets. The Company evaluated the effect of the incorrect presentation, both qualitatively and quantitatively, and concluded that its previously issued financial statements were not materially misstated due to this change in classification.

Note 2 – Amendments to the Accounting Standards Codification

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. As a “smaller reporting company” under Securities and Exchange Commission (“SEC”) rules, the Company will be required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022. The Company has formed a cross-functional working group to assess and implement the requirements of ASU 2016-13 by the adoption date. 

In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. This ASU addresses issues raised by stakeholders during the implementation of ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Among other narrow-scope improvements, the new ASU clarifies guidance around how to report expected recoveries. “Expected recoveries” describes a situation in which an organization recognizes a full or partial write-off of the amortized cost basis of a financial asset, but then later determines that the amount written off, or a portion of that amount, will in fact be recovered. While applying the credit losses standard, stakeholders questioned whether expected recoveries were permitted on assets that had already shown credit deterioration at the time of purchase (also known as purchased credit-deteriorated (“PCD”) assets). In response to this question, the ASU permits organizations to record expected recoveries on PCD assets. In addition to other narrow technical improvements, the ASU also reinforces existing guidance that prohibits organizations from recording negative allowances for available-for-sale debt securities. The ASU includes effective dates and transition requirements that vary depending on whether or not an entity has already adopted ASU 2016-13. The Company is currently assessing the impact that ASU 2019-11 will have on its consolidated financial statements.  

Note 3 – Business Combinations

On January 31, 2021, the Company completed the Bay Banks Merger, which was accounted for as a business combination. At the effective date of the merger, Bay Banks’ shareholders received 0.5000 shares of the Company’s common stock in exchange for each share of Bay Banks common stock held (“Exchange Ratio”), plus cash in lieu of any fractional shares, resulting in the Company issuing 6,634,495 shares (9,951,743 shares on a post Stock Split basis) with an aggregate fair market value of $124.9 million based on the closing price of the Company’s common stock at January 29, 2021, the last trading day prior to the effective date of the merger, and paying $3.4 thousand in lieu of fractional shares. In addition, options to purchase 198,362 shares of Bay Banks common stock, whether vested or unvested, were converted to options to acquire 99,176 shares of the Company’s common stock (148,764 shares on a post Stock Split basis) at an estimated fair value of $472 thousand as of the merger date. Finally, Bay Banks had previously acquired $1.75 million of the Company’s subordinated notes, while the Bank had previously acquired $1.10 million of Bay Banks’ subordinated notes. In the merger, an effective settlement of the notes occurred in the amount of $650 thousand, which reduced the consideration paid.

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The Bay Banks Merger combined two banks with complementary capabilities and geographical focus, thus provided the opportunity for the organization to leverage its existing infrastructure, including people, processes and systems, across a larger asset base.  

The Company has accounted for the Bay Banks Merger under the acquisition method of accounting, whereby the acquired assets and assumed liabilities are recorded by the Company at their estimated fair values as of the effective date of the merger. Fair value estimates were based on management’s assessment of the best information available at the time of determination and are highly subjective.

The following table presents the consideration paid in the merger and the summary balance sheet of Bay Banks as of the date of the merger inclusive of estimated fair value adjustments and the allocation of consideration paid in the merger to the acquired assets and assumed liabilities. Goodwill resulting from the Bay Banks Merger was $7.2 million.