8-K: Blue Ridge Bankshares Reports Q2 2024 Results, Completes $161.6 Million Capital Raise

Blue Ridge Bankshares announced a net loss for the second quarter of 2024, alongside the completion of a significant capital raise and progress in winding down its fintech operations.

Summary

• Blue Ridge Bankshares reported a net loss of $11.4 million, or $0.47 per diluted share, for the second quarter of 2024, which is worse than the $2.9 million loss in the previous quarter and the $8.6 million loss in the same quarter last year.
• The Q2 loss includes a $6.7 million after-tax negative fair value adjustment on a fintech equity investment.
• The company completed a $161.6 million capital raise through private placements to support its business transformation and meet regulatory capital requirements.
• Blue Ridge Bank is actively winding down its fintech Banking-as-a-Service (BaaS) operations, with BaaS deposits decreasing to approximately 7% of total deposits, down from about one-third last year.
• Regulatory remediation expenses have also decreased significantly, now about one-third of what they were three quarters ago.
• The bank's nonperforming assets to total assets ratio has improved to its lowest level in the past four quarters.
• Core deposits have remained relatively stable, and the company anticipates a decline in the overall cost of deposits in the second half of 2024 as they reduce high-cost BaaS deposits.
• The bank's capital ratios now exceed the minimum requirements set forth in its Consent Order with the Office of the Comptroller of the Currency (OCC).
• Total assets decreased by $143.1 million to $2.93 billion, primarily due to reductions in loans held for investment and the wind-down of fintech operations.
• Total deposits decreased by $139.9 million to $2.33 billion, with a significant reduction in fintech-related deposits.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to the significant net loss and the need for a large capital raise. However, there are some positive signs of progress in regulatory remediation and winding down fintech operations, which prevents a lower score.

Positives

• The company successfully completed a $161.6 million capital raise, strengthening its financial position.
• The bank is making progress in winding down its fintech BaaS operations, reducing associated risks and expenses.
• Regulatory remediation expenses have decreased significantly, indicating progress in addressing regulatory issues.
• Nonperforming asset ratios have improved, suggesting better asset quality.
• Core deposits have remained stable, providing a solid base for funding.
• The bank's capital ratios now exceed regulatory minimums, enhancing its stability.
• The company received approval from the FDIC to accept, renew, or rollover brokered deposits.

Negatives

• The company reported a net loss of $11.4 million for the second quarter of 2024, a significant increase from the previous quarter's loss.
• The net loss includes a $6.7 million after-tax negative fair value adjustment on a fintech equity investment.
• Total assets and deposits have decreased, reflecting the wind-down of fintech operations and reduced lending.
• Net loan charge-offs were high at $10.6 million, primarily due to a charge-off related to a specialty finance loan.
• Net interest income decreased slightly from the prior quarter.

Risks

• The company faces ongoing challenges in managing its fintech relationships and winding down BaaS operations.
• There is a risk of further losses or write-downs related to fintech investments.
• The company must continue to improve its credit culture and reduce exposure to non-core loans.
• The bank needs to maintain adequate liquidity and capital levels to comply with regulatory requirements.
• The company is subject to various economic and market risks, including changes in interest rates and inflation.
• The company is subject to the terms of the Consent Order with the OCC, including heightened capital requirements and other restrictions.

Future Outlook

The company anticipates a decline in the overall cost of deposits in the second half of 2024 as they continue to wind down BaaS operations. They will be shifting focus from remediation efforts to improving operations and positioning the bank for profitable growth.

Management Comments

• We are now several quarters into an expansive initiative to address both the remediation requirements of our primary regulator and our goal to restore Blue Ridge Bank to its core strengths and roots as a premier community financial institution.
• Many of the decisions we have made over the past few quarters have had a pronounced near-term impact, most notably on our balance sheet, expense levels, and certainly our bottom line.
• I believe we are entering a phase where we are seeing some of the fruits of our labor.
• As we move forward, we will increasingly be shifting our focus from the completion of remediation efforts to a deeper examination of our operations and identification of areas where we can improve.
• I am pleased to have the capital raise behind us, which positions the Bank to meet its regulatory capital requirements.

Industry Context

The announcement reflects a broader trend in the banking industry where institutions are facing increased regulatory scrutiny and are re-evaluating their business models, particularly in the fintech space. Many banks are reducing their exposure to high-risk fintech partnerships and focusing on core banking activities.

Comparison to Industry Standards

• The reported net loss and the need for a significant capital raise indicate that Blue Ridge Bankshares is underperforming compared to many of its peers in the community banking sector.
• The rapid reduction in fintech-related deposits and the associated balance sheet adjustments are similar to actions taken by other banks that have faced regulatory issues related to fintech partnerships, such as Cross River Bank.
• The improvement in nonperforming asset ratios is a positive sign, but the bank still needs to demonstrate consistent profitability and stability to align with industry benchmarks.
• The capital ratios exceeding regulatory minimums are a positive step, but the bank's overall financial health is still below the average for well-performing community banks, such as those in the KBW Regional Banking Index.

Management Changes

Stakeholder Impact

• Shareholders experienced a significant loss in the quarter, but the capital raise should improve the long-term stability of the company.
• Employees may experience changes due to the restructuring and wind-down of certain operations.
• Customers may see changes in the products and services offered as the bank shifts its focus.
• Suppliers and creditors may be impacted by the bank's financial performance and strategic changes.

Next Steps

• The company will continue to wind down its fintech BaaS operations.
• The company will focus on improving its credit culture and reducing exposure to non-core loans.
• The company will shift its focus from remediation efforts to improving operations and identifying areas for growth.
• The company intends to complete the exchange of Series C Preferred Stock for common stock during the third quarter of 2024.

Key Dates

Keywords

capital raise, fintech, BaaS, regulatory remediation, nonperforming assets, net loss, deposits, loans, capital ratios, Blue Ridge Bankshares