8-K: Blue Ridge Bankshares Reports Improved Q3 Results, Exits Fintech Banking

Blue Ridge Bankshares, Inc. announced a net income of $0.9 million for the third quarter of 2024, a significant improvement compared to previous quarters, driven by strategic initiatives and a recovery of credit losses.

Summary

• Blue Ridge Bankshares reported a net income of $0.9 million, or $0.01 per diluted share, for the third quarter of 2024, a substantial turnaround from a net loss of $11.4 million in the previous quarter and a $41.4 million loss in the same quarter of 2023.
• The third quarter results include a $6.6 million after-tax recovery of credit losses from a specialty finance loan sale.
• The company is on track to exit its fintech banking-as-a-service (BaaS) deposit operations by the end of 2024, with fintech BaaS deposits reduced to 3% of total deposits, down from 18% year-over-year.
• Noninterest expenses decreased by nearly 10% sequentially from the second quarter and approximately 30% lower than the third quarter of last year, excluding a goodwill impairment charge.
• Deposits, excluding fintech-related and wholesale deposits, grew by $74 million in the third quarter and $144 million year-to-date.
• The nonperforming loans to total assets ratio improved to 1.1% at the end of the third quarter, compared to 1.4% in the prior quarter and 2.5% in the third quarter of 2023.
• The company's tangible book value per common share increased to $4.25 from $4.10 in the prior quarter.
• The bank's tier 1 leverage ratio, tier 1 risk-based capital ratio, common equity tier 1 capital ratio, and total risk-based capital ratio all improved compared to the prior quarter and exceed the minimum capital ratios set forth in the bank's Consent Order with the OCC.
• Net interest income was $19.1 million, a decrease of $1.0 million from the prior quarter, primarily due to a decline in average balances of interest-earning assets and the reversal of interest income due to loans placed on nonaccrual.
• Noninterest income was $2.7 million, compared to $0.3 million in the prior quarter, which included a negative fair value adjustment for an equity investment.
• Total assets increased to $2.94 billion from $2.93 billion at the prior quarter end, primarily due to higher cash balances.
• Loans held for investment decreased by $78.9 million from the prior quarter end, and $250.5 million from year-end 2023, as the company purposefully reduced out-of-market loans.
• Total deposits increased by $20.7 million in the quarter, with deposits excluding fintech-related and wholesale deposits increasing by $73.7 million.
• The company received approval from the FDIC to accept, renew, or rollover brokered deposits for a six-month period.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the company's return to profitability, progress in exiting fintech operations, and improvements in key financial metrics. While there are still challenges, the overall tone is optimistic and indicates a positive trajectory.

Positives

• The company returned to profitability with a net income of $0.9 million in Q3 2024.
• The exit from fintech BaaS operations is progressing faster than expected.
• Significant reductions in noninterest expenses have improved operational efficiency.
• The company has successfully grown its core deposit base, excluding fintech and wholesale deposits.
• Asset quality has improved, with a decrease in nonperforming loans.
• Capital ratios have strengthened and exceed regulatory requirements.
• The company has recovered $6.6 million after-tax from a specialty finance loan sale.
• The tangible book value per share has increased.
• The company has received approval from the FDIC to accept, renew, or rollover brokered deposits for a six-month period.

Negatives

• Net interest income decreased by $1.0 million from the prior quarter due to lower average balances of interest-earning assets and the reversal of interest income on nonaccrual loans.
• Net interest margin declined to 2.74% from 2.79% in the prior quarter.
• Noninterest income decreased when excluding the fair value adjustment from the prior quarter, primarily due to negative fair value adjustments on mortgage servicing rights (MSRs) and a loss on the sale of MSRs.
• Loans held for investment decreased by $78.9 million from the prior quarter end, and $250.5 million from year-end 2023.

Risks

• The company faces risks related to the macroeconomic environment, including interest rate fluctuations and inflation.
• There are ongoing risks associated with complying with the terms of the Consent Order with the OCC.
• The company is exposed to potential litigation and regulatory actions.
• Reputational risk and adverse reactions from stakeholders could impact the company.
• Managing fintech relationships and winding down certain partnerships poses challenges.
• The quality of the loan portfolio and the risk of a downturn in the real estate market could affect the company.
• Maintaining adequate liquidity and capital levels is crucial for the company's stability.
• The company is exposed to risks related to technology, fraud, and cyber-crime.
• Changes in banking regulations and accounting standards could impact the company.
• Geopolitical conditions and health emergencies could affect business and economic conditions.

Future Outlook

The company expects to complete its exit from fintech banking-as-a-service operations by the end of 2024 and is focused on improving operational efficiency and pursuing profitable growth. The company anticipates selling the majority of its remaining mortgage servicing rights in the fourth quarter. Management is confident that the company will finish 2024 in a fundamentally stronger position.

Management Comments

• Our 2024 third quarter marks one year since we began in earnest our journey toward restoring Blue Ridge Bank to its core strengths as a community-focused banking institution.
• We are focused on three vital areas of initiative: our remediation work in response to the directives of our primary regulator; our initiatives to improve operational efficiency across the organization; and third, positioning Blue Ridge Bank for future growth.
• We are increasingly seeing the benefits of these initiatives in several key metrics that reflect a healthier Blue Ridge Bank.
• I am pleased to say that we remain ahead of schedule on this initiative and expect to be fully exited from this business by the end of the year.
• Over the next several quarters, we will be accelerating our efforts to drive new levels of efficiency across our entire organization.
• I believe we have a much tighter and stronger credit profile today.
• As we head toward the end of the year, I'm confident that we will finish 2024 in a fundamentally stronger position than we began.
• I am hopeful that we will continue to see further progress in those key metrics that are the best gauge of the strategies we are pursuing.

Industry Context

The announcement reflects a broader trend in the banking industry where institutions are re-evaluating their fintech partnerships and focusing on core banking operations. The move away from fintech BaaS is likely a response to increased regulatory scrutiny and a desire to reduce risk. The focus on operational efficiency and deposit growth is consistent with industry-wide efforts to improve profitability and stability.

Comparison to Industry Standards

• Blue Ridge Bank's improvement in nonperforming loans to total assets ratio to 1.1% is a positive sign, moving closer to the industry average for well-performing banks, which typically ranges between 0.5% and 1.0%.
• The reduction in noninterest expenses by approximately 30% year-over-year, excluding the goodwill impairment charge, is a significant improvement, potentially placing Blue Ridge Bank in a more competitive position compared to peers with higher operating costs.
• The growth in deposits, excluding fintech and wholesale, by $74 million in the quarter and $144 million year-to-date, indicates a strengthening of the core deposit base, which is a key metric for community banks.
• The company's tangible book value per common share of $4.25 is a key metric for investors, and the increase from $4.10 in the prior quarter is a positive trend.
• The bank's capital ratios exceeding the minimum requirements set forth in the Consent Order with the OCC is a critical step in demonstrating financial stability and regulatory compliance.
• Compared to other regional banks, Blue Ridge Bank's strategic shift away from fintech BaaS is a notable move, as many banks are still grappling with the risks and rewards of such partnerships. This move positions Blue Ridge Bank as a more traditional community bank.
• The company's net interest margin of 2.74% is slightly below the average for community banks, which typically range between 3.0% and 3.5%. This indicates a need for further improvement in this area.

Stakeholder Impact

• Shareholders will likely view the return to profitability and improved financial metrics positively.
• Employees may experience changes due to the restructuring and efficiency initiatives.
• Customers may see changes in the bank's product offerings and services as it shifts away from fintech partnerships.
• Suppliers and creditors may be impacted by the bank's strategic changes and financial performance.

Next Steps

• The company will complete its exit from fintech banking-as-a-service operations by the end of 2024.
• The company will accelerate efforts to drive new levels of efficiency across the organization.
• The company will continue to focus on growing deposits in its footprint and reducing out-of-market loans.
• The company expects to sell the majority of its remaining mortgage servicing rights in the fourth quarter.
• The company expects to file another application for waiver of the prohibition on brokered deposits in the fourth quarter.

Key Dates

Keywords

financial results, net income, fintech, banking-as-a-service, deposits, noninterest expense, nonperforming loans, regulatory remediation, capital ratios, credit losses, mortgage servicing rights, loan portfolio