8-K: Blue Ridge Bankshares Reports Q1 2024 Results, Completes $150 Million Capital Raise

Blue Ridge Bankshares announced a net loss of $2.9 million for the first quarter of 2024, an improvement from the previous quarter, and completed a $150 million private placement to support its transformation.

Summary

• Blue Ridge Bankshares reported a net loss of $2.9 million, or $0.15 per diluted share, for the first quarter of 2024, compared to a net loss of $5.8 million, or $0.30 per diluted share, in the previous quarter.
• The company's performance improved due to a $1.0 million recovery of credit losses, a $729 thousand positive fair value adjustment on mortgage servicing rights, and the absence of a $1.6 million loss on an equity investment sale from the previous quarter.
• These improvements were partially offset by a $1.4 million decrease in net interest income and a $1.9 million increase in noninterest expenses.
• Nonperforming loans decreased to $53.2 million, or 1.73% of total assets, from $63.1 million, or 2.02% of total assets, in the prior quarter.
• The company completed a $150 million private placement of common and preferred stock after the quarter ended, which will be used to support strategic initiatives and enhance capital levels.
• Total deposits decreased by $100.3 million, primarily due to a $162.9 million decline in fintech-related deposits, partially offset by a $48.0 million increase in brokered time deposits.
• The company is actively winding down its banking-as-a-service (BaaS) fintech depository business, with core consumer and commercial deposits remaining relatively stable.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to the improved financial results compared to the previous quarter and the successful capital raise. However, the company is still reporting a loss and faces significant challenges, including regulatory remediation and the wind-down of the BaaS business.

Positives

• The net loss improved significantly compared to the previous quarter, decreasing from $5.8 million to $2.9 million.
• The company successfully completed a $150 million private placement, strengthening its capital position.
• Nonperforming loans decreased, indicating an improvement in asset quality.
• The company achieved a recovery of credit losses of $1.0 million.
• Regulatory remediation efforts are on track, with all tasks mandated by the OCC completed to date.
• The wind-down of the BaaS business is progressing, with core deposits remaining stable.

Negatives

• The company reported a net loss of $2.9 million for the quarter.
• Net interest income decreased by $1.4 million due to higher funding costs.
• Noninterest expenses increased by $1.9 million, primarily due to higher salaries and employee benefits.
• Total deposits decreased by $100.3 million, mainly due to a decline in fintech-related balances.
• The net interest margin decreased to 2.75% from 2.92% in the prior quarter.

Risks

• The company is undergoing a significant business transformation, which carries inherent risks.
• The wind-down of the BaaS business could lead to further deposit declines.
• The company faces ongoing regulatory scrutiny and must comply with the OCC Consent Order.
• The company's financial performance is subject to changes in interest rates and economic conditions.
• There is a risk of potential adverse reactions from customers, suppliers, and employees during the transformation process.

Future Outlook

The company expects 2024 to be a transitional year, with incremental operating improvements expected as the year progresses. The company plans to use the capital from the private placement to reposition business lines, support organic growth, and enhance capital levels.

Management Comments

• Our efforts during the first quarter further reflect the deep commitment of this leadership team to aggressively pursue the steps necessary to transform Blue Ridge Bank, restore it to its community banking roots, and put it on a path to profitable growth.
• We are on a journey and, while we expect 2024 to be a transitional year, we expect that the combination of the initiatives above will begin to result in incremental operating improvement as we move through the year.

Industry Context

The company's focus on winding down its BaaS business and returning to its community banking roots reflects a broader trend in the industry where banks are re-evaluating their fintech partnerships and focusing on core banking activities. The regulatory scrutiny and remediation efforts are also indicative of increased regulatory oversight in the banking sector.

Comparison to Industry Standards

• Blue Ridge Bankshares' net loss of $2.9 million contrasts with the performance of larger, more established regional banks, which typically report profits. For example, companies like Truist Financial Corporation and Regions Financial Corporation have reported profits in the same period, although they operate on a much larger scale.
• The company's tangible book value per share of $9.04 is lower than the industry average for regional banks, which is typically in the range of $15 to $25. This indicates that the company's assets are not valued as highly as its peers.
• The company's nonperforming loan ratio of 1.73% is higher than the industry average, which is typically below 1%. This suggests that the company has a higher level of credit risk than its peers.
• The company's net interest margin of 2.75% is lower than the industry average, which is typically in the range of 3% to 3.5%. This indicates that the company is not generating as much profit from its lending activities as its peers.
• The company's capital ratios, such as the tier 1 leverage ratio of 7.44%, are within regulatory requirements but are lower than some of its peers, which may have ratios closer to 9% or 10%. This suggests that the company has less of a capital buffer than some of its peers.

Management Changes

Stakeholder Impact

• Shareholders will benefit from the strengthened capital position and the company's efforts to return to profitability.
• Employees will be impacted by the ongoing transformation and the changes in leadership.
• Customers may experience changes in services as the company winds down its BaaS business.
• Suppliers and creditors will be impacted by the company's financial performance and its strategic initiatives.

Next Steps

• The company will continue to execute its strategic plan, focusing on regulatory remediation, winding down the BaaS business, and returning to its community banking roots.
• The company will use the proceeds from the private placement to support its transformation and enhance its capital position.
• The company will develop an asset resolution plan to reposition portions of its balance sheet.

Key Dates

Keywords

Blue Ridge Bankshares, Financial Results, Capital Raise, Private Placement, Regulatory Remediation, Banking-as-a-Service, Fintech, Net Loss, Nonperforming Loans, Deposits